CSS Partners FTSE350 Market Report

Market Report

28 July 2008

Kesa Electricals PLC
KESA.L

Sector	General Retailers
Last closing price (28/07/08) (p)	154.0
52 week High/Low (p)	340.0/128.25
Market Cap (£mn)	896.27
Sector weight age by Market Cap (%)	3.873
Average Volume (mn)	9.06
P/E ratio (TTM)	–
Industry P/E ration (TTM)	14.65

TTM: Trailing Twelve Month

Daily chart (KESA.L)

Business Background and Investment rationale

Kesa Electricals PLC is a holding company with independent subsidiaries operating through 690 stores in nine European countries. The Company’s principal activity is electrical goods and furniture retailing.

Gloomy British Retail consortium data on retail sales

In its latest retail sales monitor, British Retail Consortium (BRC) said like-for-like retail sales in the UK fell 0.4% in June from the same month last year; far worse than predictions of a 1.1% increase. BRC blamed weather conditions for the drop in June’s retail sales. Sales have now fallen in three of the past four months and Kesa will face further difficulty in the tough electrical market. TV sales are slowing dramatically and the looming entrance of Best Buy in Europe coupled with growth in online sales will further deteriorate margins.

Negative outlook for medium term

In a trading statement last month, Kesa said it expects decline in consumer confidence to continue and anticipates further difficulty in trading conditions, with negative like-for-like sales for Comet throughout the rest of the year. The Company’s main priority for the year is to focus on maintaining product margins and improving productivity, while reinforcing strong service propositions and planned investments in the existing businesses and new markets to secure longer term growth.

Technical outlook

On daily chart, stock has retraced from a high of 176.0p, and is struggling to make a new high of 176.0p. There is trend forming in a negative direction as ADX is near 30 and -DMI is above +DMI. 14-day RSI is below 50 and MACD is negative, showing weakness in trend. On stochastic a negative divergence has formed and fast stochastic has cross below slow stochastic, indicating price will fall further. Stock has resistance near 180.0 and support at its 52-week low at 128.0p. Looking at current market conditions and negative news flow, Kesa has not hit the bottom and indications are it will fall further if it breaches 128.0p level.

Trading strategy

The stock can be sold around 159.0p with a profit target 141.0p and stop loss of 166.82p (Hedge position: Long position in spread betting with £7.86 bet per point).

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Thomson Reuters PLC
TRIL.L

Sector	Media
Last closing price (28/07/08) (p)	1357.0
52 week High/Low (p)	1934.2/1132.0
Market Cap (£bn)	11.403
Sector weight age by Market Cap (%)	5.806
Average Volume (mn)	3.298
P/E ratio (TTM)	-
Industry P/E ration (TTM)	8.12

TTM: Trailing Twelve Month

Daily chart (TRIL.L)

Business Background and Investment rationale

Thomson Reuters PLC delivers electronic information and decision support tools to businesses and professionals. It provides content and technology platforms to customers in the financial, legal, tax and accounting, healthcare and scientific sectors.

Negative outlook for finance industry

Thomson Reuters’ Markets division, which represented 60% of revenue in 2007, will have negative growth in the current financial crisis as big financial institutions look to cut costs by reducing spending on market data and news. Retrenchment in head count will impact demand for terminal numbers and price negotiations for euro-based terminal contracts will dent the Company’s profits.

Completion of share buyback

Thomson Reuters is unlikely to continue buying back its shares once the current $500 million buyback program ends, having already bought back around $450 million of stock since the merger. Share price has been supported by the $500 million share buyback program, which is almost complete, and once this support is removed there is further downside risk to the shares.

Technical outlook

On daily chart, Reuters has rallied 900.0p after its merger with Thomson and consolidates between 1900.0p and 1500.0p for a considerable time. The stock has retraced from 1410.0p after making a new 52-week low of 1132.0p. MACD is negative and 14-day RSI is below 50 with negative divergence indicating stock will have retracement.Trend is negative and it should be sold on rise near resistance level. 14-day -DMI have cross below 14 day +DMI indicating strong downside trend. Stock has strong resistance between 1400.0p-1410.0p.

Trading strategy

The stock can be sold around 1400.0p with a profit target 1240.0p and stop loss of 1470.0p (Hedge position: Long position in spread betting with £0.892 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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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