CSS Partners FTSE350 Market Report

Market Report

10 November 2008

Tesco PLC
TSCO.L

Sector	Food & drug retailers
Last closing price (10/11/2008) (p)	323
52 week High/Low (p)	493.75/300.8
Market Cap (£bn)	26.71
Sector weight age by Market Cap (%)	67.68
Average Volume (mn)	39.01
P/E ratio (TTM)	12.10
Industry P/E ration (TTM)	1286.69

TTM: Trailing Twelve Month

Daily chart (TSCO.L)

Business background and investment rationale

Tesco PLC is one of the world’s leading international retailers. The group’s principal activity is food retail, with over 2,000 stores worldwide. Tesco has a long term strategy for growth, based on four key parts: growth in the core UK business; international expansion; to be as strong in non-food as in food retail; and to follow customers into new retailing services.

Expansion in international business

To minimise the risk from the UK market, Tesco is expanding internationally with the acquisition of 36 Homever stores in South Korea from the E-Land Group. The deal will provide Tesco with the equivalent of three years’ organic expansion and means a reduction in future store development in areas where Homever stores currently trade. Tesco has also entered the Indian market with a plan to develop wholesale cash & carry business, based in Mumbai, offering a comprehensive range of great value fresh food, grocery and non-food products to small retailers, restaurants, kirana stores and other business owners. At the same time, the group also entered into a fee-based franchise agreement with Trent, the retail arm of the Tata Group, to provide expertise and technical support to Star Bazaar, its hypermarket business. Star Bazaar will also be a customer of the cash & carry business. The company also purchased a 50% shareholding of Tesco personal finance from Royal Bank of Scotland which could deliver £1bn in profits per annum, a significant increase from current profits of £400m.

Introduction of discount brands and operational improvement

Given the household budget pressures thanks to the current financial turmoil, Tesco introduced 400 discounted brands covering most grocery categories. The new range is higher in price and quality than Tesco Value, and will match discounted ranges in addition to 550 other products which are price-matched. Tesco’s introduction of self checkouts are reducing queues through the use of improved technology including faster, more accurate scanners and checkout cameras which continually track queue lengths.

Technical outlook

On daily chart, Tesco is trading in a positive channel with higher highs from a low of 300.0p and crossing above 20 and 50-day EMA, indicating a strong technical rebound. MACD is negative but 12-day EMA has cross above 26-day EMA indicating a weak buy signal. 14-day RSI is making positive slope and +DMI crossing above –DMI, indicating a positive trend forming. Stock has support between 300.0p and 312.0p and resistance at the 364.0p and 387.0p level.

Trading strategy

The stock can be bought around 312.0p with a profit target 347.97p and stop loss of 296.35p (Hedge position: short position in spread betting with £4.0 bet per point).

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Aveva Group PLC
AVV.L

Sector	Software & computer services
Last closing price (10/11/2008) (p)	710
52 week High/Low (p)	1640/675
Market Cap (£mn)	493.31
Sector weight age by Market Cap (%)	3.66
Average Volume (k)	571.49
P/E ratio (TTM)	14.46
Industry P/E ration (TTM)	2.65

TTM: Trailing Twelve Month

Daily chart (AVV.L)

Business background and investment rationale

Aveva Group PLC is engaged in the marketing and development of computer software and services for engineering and related solutions. The company provides engineering information technology (IT) software to the plant, power and marine industries.

Strong trading statement

In last month trading statement Aveva said it expected strong demand in each of its principal end-user markets of oil and gas, power and marine. Geographically, Asia-Pacific and Central Eastern & Southern Europe will remain particularly strong with good customer wins across all main markets. Aveva expect its full-year results to be towards the top end of forecasts following strong growth in the first half, and there is no indication that the global financial turbulence has affected demand for its products.

Contract wins in the emerging markets

Recently Korean shipbuilder, SPP Shipbuilding, has signed a multi-million US dollar agreement with AVEVA for the supply of AVEVA Marine design solutions to the company's three shipyards. In China, AVEVA has gained recognition as one of the strongest players in the engineering software market, both in the marine and process plant industries, with further penetration into the nuclear power sector, as well as signing strategic alliances with national oil operator China Offshore Oil Engineering Company (COOEC). In Brazil, Aveva won a long-term contract from Petrobras and it secured a significant order in the Middle East from Abu Dhabi Ship Building, which will use AVEVA Marine for both commercial and military new build programmes, as well as refit work.

Technical outlook

On daily chart, Aveva is making double bottom pattern between 910.0p and 675.0p, volatility is decreasing on the fall indicating consolidation and bottom formation near 700.0p. On technical, MACD and 14-day RSI are rising with a fall in share price indicating reversal soon, with 12-day EMA in MACD crossing above 26-day EMA showing a weak buy signal. Directional moving index is flat and stochastic is near oversold indicating bottom formation. Stock has support at 675p and resistance at 800.0p and 900.0p level.

Trading strateg

The stock can be bought around 685.0p with a profit target 762.74p and stop loss of 651.19p (Hedge position: short position in spread betting with £1.82 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.

There is no certainty that execution prices can be achieved, either in opening or in closing a position.

There is considerable risk operating in equity, futures, options and spread betting markets and investors need to be able to sustain a total loss of capital along with unlimited liability. Potential investors are recommended to consult a financial adviser before entering into such positions.

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