| Sector |
Support services |
Last closing price
(16/03/2009) (p) |
460 |
| 52 week High/Low (p) |
650/306 |
| Market Cap (£bn) |
1.04 |
Sector weight age by
Market Cap (%) |
2.43 |
| Average Volume (k) |
822.3 |
| P/E ratio (TTM) |
13.63 |
Industry P/E
ration (TTM) |
1.83 |
TTM: Trailing Twelve Month
Daily chart (BAB.L)
Business background and investment rationale
Babcock International Group PLC works primarily with public sector institutions. The company provides outsourcing services to government and private sector customers and works extensively with the UK armed forces. The company is split into six divisions – including Defence, Engineering and Naval services – and has businesses across Europe, Africa and North America.
Strong order book
In an interim management statement released in February 2009 Babcock’s order book climbed above £5bn after the firm signed more contracts and it’s performance for the year ending March 2009 was on track to meet expectations. Among the new deals announced in February, Babcock was awarded the Long Overhaul Period and Refuel (LOP(R)) contract for HMS Vigilant. The three and a half year contract is expected to be worth in excess of £300m. In September 2008, the group signed a 30-year contract worth £1.5bn to provide training and associated support to the Royal School of Military Engineering (RSME), which represented a significant opportunity to extend it’s position in the military training market. In July 2008 Babcock won manufacturing contracts worth £675m to construct the bow sections and carry out the assembly and completion of the ships at the Rosyth dockyard. Babcock also added a C$250m (£125m) five-year contract with the Canadian government to provide in-service support for their Victoria class submarines, marking the group’s first opportunity to utilise submarine expertise in international markets. The company expects to win more contracts as the economic downturn worsens, particularly with governments looking to keep costs low through outsourcing.
Strong performance by marine and nuclear divisions
Babcock’s marine division, which represents just under half of the group, delivered a 45% increase in profit’s due to a full contribution from acquisitions and cost saving initiatives. it’s nuclear division saw first-half profit’s rise 103% as it benefited from the integration of a recently purchased civil nuclear businesses. The group’s funding position is good and there are no refinancing requirements until 2012. At the end of September last year Babcock identified a further £10m of expected annual savings by 2011, in addition to the initial £4m announced at the time of the acquisition of DML in May 2007.
Technical outlook
On daily chart, Babcock has made a higher low from it’s October 2008 low of 306.0p, which is quite encouraging and is supported by trading above 20 day EMA (exponential moving average). MACD (moving average convergence /divergence) is negative but 12 day EMA has cross above 26 day EMA indicating positive trend forming. 14 day RSI (relative strength index) is also above oversold zone of 30 and positive DMI (directional moving index) is crossing above negative DMI, indicating a positive trend forming. Stock has support between 417–423.0p and resistance at 496–513p.
Trading strategy
The stock can be bought around 445.0p with a profit target 496.30p and stop loss of 422.6p (Hedge position: short position in spread betting with £2.80 bet per point).
| Sector |
Tobacco |
Last closing price
(16/03/2009) (p) |
1704 |
| 52 week High/Low (p) |
2043/1350 |
| Market Cap (£bn) |
33.09 |
Sector weight age by
Market Cap (%) |
66.8 |
| Average Volume (mn) |
7.09 |
| P/E ratio (TTM) |
13.53 |
Industry P/E
ration (TTM) |
1.45 |
TTM: Trailing Twelve Month
Daily chart (BATS.L)
Business background and investment rationale
British American Tobacco PLC is an international company engaged in the sale of cigarettes, cigars, leaf and other tobacco products. It has over 300 brands in it’s 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 final year result announced in February 2009, BATS’ revenue increased by 21% to £12.12bn as a result of: 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’ profit’s from operations were 23% higher at £3.57bn with all regions contributing to this strong result. Group volumes from subsidiaries were £715bn - up 4% - thanks to a combination of organic volume growth of 1% and the benefit’s from the two acquisitions. In the Asia-Pacific region profit’s 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. Profit’s in Latin America increased by £78m to £759m following excellent performance in Brazil and, again, thanks to favourable exchange rate movements. In Europe, profit’s were up £371m reaching £1.21bn as a result of the ST acquisition and excellent performances in Russia, Uzbekistan, Romania and Spain and on the back of growth in Germany, France, Switzerland and Italy.
Improvement in operating margins
BATS has made further progress with productivity savings and is on track to reduce costs by £800m in 2012, which is in addition to the £1bn saved between 2003 and 2007. The principal areas of focus continue to be the supply chain through initiatives - such as the Global Leaf Pool program - and reduction in overheads and indirect costs. As a result of this focus, BATS’ operating margins increased to 31% in 2008.
Technical outlook
BATS is consolidating between 1600.0p and 1800.0p and has not moved up in the current rally, so once again stock is trading near the 1650 level. 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 a downward trend. Negative 14 day DMI is above positive 14 day DMI indicating a negative trend, but DMI is near 20 supporting consolidation. If stock holds the level above 1650.0p a higher move can be expected, with support between 1665–1591.0p and resistance at 1820.0p and 1940.0p levels.
Trading strategy
The stock can be bought around 1670.0p with a profit target 1862.5p and stop loss of 1586.23p (Hedge position: Short position in spread betting with £0.74 bet per point).
BATS PLC
BATS hit the reduced profit target of 1750.0p and is consolidating between 1600.0p and 1800.0p. Stock is trading near the 1650 level. 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 a downward trend. Negative 14 day DMI is above positive 14 day DMI indicating a negative trend, but DMI is near 20 supporting consolidation. If stock holds the level above 1650.0p a higher move can be expected with support between 1665–1591.0p and resistance at 1820.0p and 1940.0p levels.
Amec PLC
AMEC hit the profit target of 543.0p and is trading around the profit target of 543.0p. MACD is negative and 12 day EMA has cross above 26 day EMA, indicating positive trend. This is supported by the 14 day RSI which is near the 50, indicating a rebound. 14 day negative DMI is above positive 14 day DMI indicating negative trend. Stock has support around the 450–470.0p range with resistance at 580.0p.
Fresnillo PLC
Fresnillo hit the profit target of 424.6p and is on track to complete ‘V’ pattern between 312.0p and 471.0p. MACD is positive and 12 day EMA has cross above 26 day EMA, indicating formation of uptrend. 14 day RSI is also above 50 supporting an upward move. 14 day positive DMI is above negative 14 day DMI indicating a positive trend. Stock has support around the 352–370.0p range with resistance at 471.0p.
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.
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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.
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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.
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