| Sector |
Food producers |
Last closing price
(23/02/2009) (p) |
643 |
| 52 week High/Low (p) |
910/590 |
| Market Cap (£bn) |
5.11 |
Sector weight age by
Market Cap (%) |
12.93 |
| Average Volume (mn) |
1.0 |
| P/E ratio (TTM) |
14.27 |
Industry P/E
ration (TTM) |
6.87 |
TTM: Trailing Twelve Month
Daily chart (ABF.L)
Business background and investment rationale
Associated British Foods PLC comprises four business segments: Grocery; Primary Food & Agriculture; Ingredients and Retail. The group’s sales stretch across the globe with manufacturing operations in Europe, North America, Asia, Australia and New Zealand.
Strong retail sales growth in Primark
In a press release issued today, ABF announced first half sales at Primark were substantially ahead of last year, reflecting the growth in retail selling space and a 5% increase in like-for-like sales. On the back of strong trading performance last year-end, the company opened six new stores. These comprised ABF’s first Dutch outlet based in Rotterdam; two in the UK situated in High Wycombe and Corby and three in Spain at Oviedo, La Coruna and La Gavia (Madrid) bringing the total number of Spanish stores to 12. Initial trading at the inaugural Netherlands’ store has been encouraging and the company is expected to make its first moves into Germany and Portugal by opening stores in Bremen and Lisbon respectively. Following the success in the British and Spanish markets, ABF expects to open a further seven outlets in the second half of the year focusing on Bristol, Cambridge and a relocation in Tooting in the UK, and two more stores in Spain. As at the end of February, the company is operating from 187 stores and 5.6m sq ft of selling space.
Private placement and weakness in sterling boost revenue
In March 2009, ABF expects to complete a private placement of senior notes to a number of UK and US institutional lenders. The funding will raise $600m with an average maturity of 6.7 years, and the issue will add to the financial strength and flexibility of the group. It will provide funds in addition to the existing committed bank facilities and diversify sources of funding and lengthen its debt maturity profile. The weakness of sterling, particularly against the euro and US dollar, has been a major feature of the period with the Grocery and Ingredients sectors among the main beneficiaries of currency translation.
Acquisition and improvement in cost efficiency
Last year ABF spent £125m on acquisitions to establish a major presence in the beet sugar industry in North East China, and on certain European assets from the Glide 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, which is progressing well on cost savings and the expansion of the Jordans brand.
Technical outlook
On daily chart, ABF is trading near to its strong support of a band of 620.0p–640.0p. Trend for the stock looks negative as MACD (moving average convergence/divergence) is negative and the 14 day RSI (relative strength index) is trading near the oversold zone of 30. It is also trading below 20 day, 50 day and 200 day EMA (exponential moving average), supporting a downward trend. 14 day DMI (directional moving index) is flat and stochastic is below 20, indicating consolidation for the short term. If stock consolidates above 620.0p a higher move can be expected. Stock has support between 620.0p–640.0p and resistance at 681.0p and 713.0p levels.
Trading strategy
The stock can be bought around 626.0p with a profit target 698.17p and stop loss of 594.6p (Hedge position: Short position in spread betting with £1.99 bet per point).
| Sector |
Tobacco |
Last closing price
(23/02/2009) (p) |
1719 |
| 52 week High/Low (p) |
2043/1350 |
| Market Cap (£bn) |
34.55 |
Sector weight age by
Market Cap (%) |
62.1 |
| Average Volume (mn) |
5.03 |
| P/E ratio (TTM) |
14.77 |
Industry P/E
ration (TTM) |
1.47 |
TTM: Trailing Twelve Month
Daily chart (BATS.L)
Business background and investment rationale
British American Tobacco PLC is an international tobacco company engaged in the sale of cigarettes, cigars, leaf and other tobacco products. It has over 300 brands in its portfolio which are sold in more than 180 markets. BATS has four Global Drive Brands (GDB): Dunhill, Kent, Lucky Strike and Pall Mall.
Strong growth in emerging markets
In a third quarter result announced in October 2008, the group’s revenue increased by 19% to £8,704m. The increase was thanks to: favourable exchange rate movements; improved pricing; a better product mix; and the acquisitions of Tekel and Skandinavisk Tobakskompagni (ST) in the middle of last year. BATS’ profits from operations were 18% higher at £2,714m (and up 20% when excluding exceptional items), with all regions contributing to this strong result. Business volumes from subsidiaries were up by 1% on an organic basis and when including the Tekel and ST acquisitions, they rose by 4% (equating to sales of 524 billion cigarettes). In the Asia-Pacific region, profits rose by £104m to £602m, mainly attributable to strong performances in Pakistan, Vietnam, Bangladesh, Australia and Malaysia, as well as benefiting from favourable exchange rates. At constant rates of exchange, profits would have grown by £65m or 13%. In Europe, profits were at £896m, up from £246m, as a result of the ST acquisition and excellent performances in Russia, Romania and Spain.
Significant acquisition in emerging market
As mentioned, in February 2008 BATS won the public tender for Tekel, the Turkish state owned Tobacco Company, with a bid of US$1,720m. The acquisition will raise the company’s share in the Turkish market, which is the eighth largest cigarette market in the world, to some 36% from just over 7%. The company also announced an agreement to acquire 100% of Skandinavisk Tobakskompagni’s (ST) cigarette and snus (moist powder tobacco) business. ST accounts for more than 60% of cigarette sales in Scandinavia, allowing BATS to strengthen its market positions in Denmark, Norway, Sweden and Poland and achieve significant synergy benefits after acquisition.
Technical outlook
BATS has made a strong negative trend and is very near to its upper support level of 1700.0p. Trend for the stock looks negative as MACD is negative and the 14 day RSI is trading near to the oversold zone of 30. It is also trading below 20 day, 50 day and 200 day EMA, supporting downward trend. Negative 14 day DMI is above positive 14 day DMI indicating a strong negative trend. If stock holds the level above 1700.0p a higher move can be expected, with support between 1665.0p–1591.0p and strong resistance at 1920.0p and 2046.0p levels.
Trading strategy
The stock can be bought around 1685.0p with a profit target 1879.2p and stop loss of 1600.53p (Hedge position: Short position in spread betting with £0.74 bet per point).
SSL International PLC
On daily chart, SSL is trading below strong resistance of 500.0p which indicates a negative trend has formed. MACD is positive but 12 day EMA has cross below 26 day EMA, indicating a weak sell signal. The 14 day RSI is also below 50 showing weakness in trend, while stochastic is below 20 indicating short-term oversold. Stock has support at 460.0p and resistance near 510.0p. Stock should be a hold with reduced profit target of 510.0p and new stop loss of 466.16p.
Rolls-Royce Group PLC
The stock has hit the stop loss of 301.1p and is trading below the stop loss and the key support level of 300.0p, indicating it can re-test its 52-week low of 247.0p if it breaches 271.0p. MACD is negative and the 14 day RSI is near 30 indicating strong negative trend. Negative 14 day DMI is above positive 14 day DMI indicating strong negative trend. All positions should be closed for the stock.
Compass Group PLC
On daily chart, Compass has hit the stop loss of 305.85p. MACD is negative and the 14 day RSI is near 30 indicating a strong negative trend. Negative 14 day DMI is above positive 14 day DMI indicating a strong negative trend. Stock has completed a double top pattern between 363.0p and 310.0p; if it falls below 300.0p it can re-test 250.0p, indicating all positions should be closed for the stock.
Mouchel Group
On daily chart, Mouchel held last week’s slump and is trading below the entry price of 343.0p. MACD is positive and 12 day EMA has cross below 26 day EMA, indicating weakness in uptrend. This is supported by the 14 day RSI which is below 50 and indicates a short-term correction. 14 day DMI is flat indicating a consolidation around 340.0p. Stock has support of around 326.0p with resistance at 382.0p. For an uptrend, stock should consolidate above 350.0p. If stock falls below 325.85p losses should be booked.
Important Information
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.
The report is provided solely for your information and may not be reproduced or redistributed, in whole or in part to any other person without specific consent of CSS Partners.
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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.
In accordance with section 12.4 of the FSA’s New Conduct of Business Rules, CSS Partners makes the following disclosures:
CSS, CSS Partners and their respective officers, directors, shareholders and /or partners may have a shareholding in the companies reviewed in this report. They will not have access to this report until it is published, except those responsible for compliance issues concerning this report.
The research analyst responsible for the content of this research report certifies that: the views expressed and attributed to the research analyst or analysis in the research report accurately reflect his personal assessment about the subject securities and issuers and/or other subject matter as a appropriate; and no part of his compensation was, is or will be, directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
The analyst is not involved in any other activity of CSS Partners or CSS that is inconsistent with his objectivity in preparing the reports. His research information is confidential, the only persons privy to this data bar the analyst are the senior management. The research recommendations will be updated, but neither CSS nor CSS Partners accept any responsibility for any delay or interruption of service in the submission of reports or updates to reports.
Distribution of recommendations for the period 1st October to 19th December 2008:
| |
% Distribution of recommendations |
No of recommendation |
| Buy |
100% |
22 |
| Hold |
0 |
0 |
| Sell |
0 |
0 |
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.
Your attention is also directed to the terms of our client agreement with you that covers the provision of this service. To the extent that there is any conflict between the above and the client agreement, the provisions of the above disclaimer will take priority.
