CSS Partners FTSE350 Market Report

Market Report

23 June 2008

Wolseley PLC

BT Group PLC

Stocks Update

Wolseley PLC
WOS.L

Sector	Support Services
Last closing price (20/06/08) (p)	445.50
52 week High/Low (p)	1286.0/443.50
Market Cap (£mn)	2868.452
Sector weight age by Market Cap (%)	4.598
Average Volume (mn)	12.45
P/E ratio (TTM)	9.34
Industry P/E ration (TTM)	0.55

TTM: Trailing Twelve Month

Daily chart (WOS.L)

Business Background and Investment rationale

Wolseley PLC distributes construction materials and provides related services to a specialist market of professional contractors. Wolseley and its subsidiaries are organised into two geographic divisions covering Europe and North America.

Slowdown in US and European housing market

In the last nine months, company revenues fell following the slowdown in the North American and European markets. In North America, organic revenue declined 3% and trading profit was 1% lower than the equivalent period in the prior year. Stock building supply continued to be affected by the US housing slowdown and revenues fell 25%, with additional pressure on gross margins. The trading loss for the nine-month period was US$158 million. Wolseley Canada achieved 2% constant currency revenue growth, although trading profit was 15% lower following the earlier announcement of costs from the one-off branch closures. Wolseley UK experienced a more challenging April as the market slowed significantly. Wolseley France increased local currency revenue by 3% in the nine-month period and trading profit was 18% lower.

Challenging outlook and high debt

The company expects challenging trading conditions to continue in many of its markets for the next two years, with negative growth in revenue. The group is closing 75 branches and will reduce headcount by 200 at Ferguson (North America). It has also closed or consolidated in 15 locations in Canada. These restructuring decisions will result in one-off costs of about £50 million in the fourth quarter and see annual savings of about £70 million. Wolseley Group expects the net debt to EBITDA ratio to be less than 3.5 times on emergency repayment of two new debt facilities for $200 million and EUR250 million, prior to 31 July 2008. Group warned that the net debt situation may worsen if declining volumes persist and gross margins remain low.

Technical outlook

On daily chart, stock is trading at a 52-week low and broken a key support of 469.0p after making a channel between 583.0p and 469.0p. MACD is negative and 12-day EMA has cross below 26-day EMA.14-day RSI is below 50 indicating weakness in stock, both RSI and MACD are making negative slope with heavy negative volume showing downside on card.

Trading strategy

The stock can be sold around 445.0p with a profit target 395.0p and stop loss of 467.0p (Hedge position: Long position in spread betting with £2.80 bet per point).

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BT Group PLC
BT.L

Sector	Telecommunication Services
Last closing price (20/06/08) (p)	201.5
52 week High/Low (p)	338.0/201.5
Market Cap (£bn)	16.30
Sector weight age by Market Cap (%)	73.71
Average Volume (m)	33.74
P/E ratio (TTM)	9.93
Industry P/E ration (TTM)	11.25

TTM: Trailing Twelve Month

Daily chart (BT.L)

Business Background and Investment rationale

BT Group PLC is a communications services company. Company activities include the provision of networked information technology (IT) services globally, broadband and Internet products and services, and converged fixed/mobile products and services.

Resilient performance by Global services and broadband business

The Group Global Services business achieved contract wins of £2.8 billion in the fourth quarter, with £8 billion coming during the last 12 months. Global Services further improved profitability with EBITDA margins, before specific items and leaver costs, improving by 0.4 percentage points on the previous year, reaching 13.7%. Outside the UK, BT Global Services has accelerated revenue growth to 28%. In broadband business BT represents an increase of 1.9 million wholesale broadband connection year-on-year. There were 499,000 connections in the quarter with the retail share of those net additions at 150,000, representing 30%. BT Retail remains the UK’s number one retail broadband provider with a customer base of 4.4 million at 31 March 2008.

Cost reduction and share buy back programme

In the last quarter of 2007, the group saved £56 million in a cost efficiency program, with total cost savings for the year reaching £625 million. Other operating income increased by £55 million to £136 million in the quarter, which included some up front benefits from the transformation of the company’s operational cost base through global outsourcing and process improvement, and income from the exploitation of intellectual property. To stabilise share price, the group bought back 540 million shares for a consideration of £1,506 million last year as part of £2.5 billion share buyback program, which will complete by 31 March, 2009.

Technical outlook

On daily chart, stock is at a key support level of 200.0p and 205.0p making a 52-week low. On MACD, 12-day EMA has cross below 26-day EMA and 14-day RSI is above 50.0 showing downside strength in move with a negative slope. 14-day negative DMI has cross below 14-day negative DMI indicating a trend is forming downside. Stock has strong resistance near 223.0p level and if it falls below 200.0p support can found near 189.0p and 185.0p.

Trading strategy

The stock can be sold around 208.0p with a profit target 187.0p and stop loss of 217.13p (Hedge position: Long position in spread betting with £6.00 bet per point).

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Stocks Update

Whitbread PLC

Whitbread’s share price came down after a steep rise from a strong update. The stock couldn’t hold a level of 1300.0p. Share price is making lower high and declining pattern. MACD is negative and 12-day EMA has cross below 26-day EMA, indicating stock will fall further. RSI is below 50 indicating strength weakness with negative slope. It is better to exit from Whitbread with an exit target 1250.0p.

BG Group PLC

BG is trading in a small range of 1220.0p and 1301.0p after making a high near 1400.0p. MACD is negative and RSI is below 50 suggesting weakness in prices. On stochastic it is oversold and a weak buy signal is generated, but looking at the flat trend it is better to exit from the stock with a lower profit target of 1280.0p.

British Sky Broadcasting PLC

BSY is making a lower high suggest that it is heading lower in short term. MACD is negative and 12-day EMA has cross below 26-day EMA indicating sell signal. RSI has rebounded from the oversold zone, but below 50 showing weakness in share price. It has alo broken a key support level of 500.0p, it is better to exit from the stock with an exit target of 500.0p.

Britvic PLC

On daily chart Britvic is trading at key support level of 300.0p.MACD is negative and 12-day EMA has cross below 26-day EMA indicating a sell signal. RSI is near to the oversold zone and on directional index the trend is downward. Looking at the trend it is better to exit from the stock with an exit target of 307.0p.

BATS PLC

BATS has rebounded from a January low of 1710.p. On daily chart it is oversold as RSI is below 30.0 and MACD is negative and near to historical low of January. On stochastic it is indicating a buy signal. Looking at the trend it is better to exit on his rebound with an exit target of 1780.0p.

British Airways PLC

Stock has a perfect inverse relation with high oil prices; it had a steep fall after oil prices rose above $135 per barrel. MACD is negative and 12-day EMA has cross below 26-day EMA showing a downtrend. RSI is below 50 and the trend is downward, and on directional index a downward trend is forming. It is likely that it will test the 52-week low of 192.0p, it is better to hold the stock with an improved profit target of 202.0p.

Vedanta Resource PLC

Position couldn’t hold on stock as it was trading a small range above 2300.0p. It has key support between 2200.0p and 2250.0p, MACD is negative and 12-day EMA has cross below 26-day EMA. RSI is below 50 and DMI is flat indicating stock price will come down. It is better to take entry position at 2250.0p.

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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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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