| Sector |
Support services |
Last closing price
(23/03/2009) (p) |
364 |
| 52 week High/Low (p) |
496.25/317 |
| Market Cap (£bn) |
1.69 |
Sector weight age by
Market Cap (%) |
3.99 |
| Average Volume (mn) |
3.53 |
| P/E ratio (TTM) |
17.28 |
Industry P/E
ration (TTM) |
1.66 |
TTM: Trailing Twelve Month
Daily chart (SRP.L)
Business background and investment rationale
Serco Group PLC is an international service company operating in four business segments: Civil Government, Transport, Defence and Science. The company’s private sector business is split across these segments and provides information technology (IT) services, fleet maintenance, facilities management and other services to major companies.
New contract wins and acquisitions
Serco maintained win rates of more than 90% when re-tendering for contracts and secured one in two new bids, representing a total of £3.2bn in new business during 2008. Serco was selected by Glasgow City Council as a partner in a 10-year joint venture valued at around £265m and the firm is also part of a consortium selected for the £120m Al Safooh tramway in Dubai which is scheduled for operation in 2011. Also in Dubai, Serco picked up a £500m, 12.5 year contract to operate and maintain the new Dubai Metro, which is due to start service in September 2009. Serco completed two acquisitions in 2008; first was with SI International – a provider of information services, technology and network solutions to the US government – worth US$524m, with bidding pipeline of £2bn. The acquisition of SI International has increased US Civil Government revenue by 18.4% to £1.13bn and the division now represents 36% of the company’s revenue compared with 34% in 2007. The second acquisition saw Serco enter the Indian market with a majority shareholding in InfoVision, a leading business process outsourcing (BPO) business serving the domestic Indian market. Serco paid for £14.8m for the deal which will launch it’s brand in India.
High visibility of future earnings
As at 31 December 2008, Serco had an order book of £16.3bn and identified further opportunities worth £26bn. The company has 90% visibility in planned revenue for 2009, 76% for 2010 and 65% for 2011. In 2009, excluding SI International, Serco expects to deliver double-digit revenue growth and a 30 basis points increase in adjusted profits before tax (PBT) margin. The addition of SI International is anticipated to increase 2009’s revenue growth by approximately 10%.
Technical outlook
On daily chart, Serco has rebounded from support of 350.0p making a higher low from it’s November low of 317.0p which is an encouraging sign. MACD (moving average convergence/divergence) is negative and 12 day EMA (exponential moving average) has just crossed above 26 day EMA, indicating a weak uptrend forming. 14 day RSI (relative strength index) is below 50 showing weakness in trend. 14 day negative DMI (directional moving index) is above 14 day positive which indicates short-term weakness in trend. Stock is also below 20 day and 50 day EMA which supports weakness in trend. Stock has strong support near 320.0p and 350.0p and resistance near 400.0p.
Trading strategy
The stock can be bought around 355.0p with a profit target 395.93p and stop loss of 332.2p (Hedge position: Short position in spread betting with £3.52 bet per point).
| Sector |
Oil equipment services and distribution |
Last closing price
(23/03/2009) (p) |
232 |
| 52 week High/Low (p) |
503.5/151.8 |
| Market Cap (£bn) |
1.21 |
Sector weight age by
Market Cap (%) |
19.71 |
| Average Volume (mn) |
3.2 |
| P/E ratio (TTM) |
6.92 |
Industry P/E
ration (TTM) |
0.3 |
TTM: Trailing Twelve Month
Daily chart (WG.L)
Business background and investment rationale
John Wood Group PLC is an energy services company operating in 46 countries and is split across three businesses: Engineering & Production Facilities, Well Support and Gas Turbine Services. The company provides a range of engineering production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas and power generation industries worldwide.
Strong growth in engineering and production facilities
In a final result announced in March 2009, Wood Group’s revenue grew 18% to $5.2bn. This increase reflects the strong growth in Engineering & Production Facilities and Well Support and the relatively flat revenue in Gas Turbine Services. The strong performance in Engineering & Production Facilities was driven by increased activity across all sectors in Engineering and the continued strong demand for Production Facilities activities in the North Sea and international markets. Group earnings before interest, taxes and amordization (EBITA) increased from 7.2% to 8.4%, reflecting the strengthening of margins in all divisions. In 2008, Wood Group secured numerous contracts including the multi-million Russian Gazprom Shtokman gas project to provide the front-end engineering design and management services. The firm also secured a deal with the Korea National Oil Company (KNOC) for front-end engineering design (FEED) work on the Blackgold SAG-D project and StatoilHydro for construction management services to it’s Northern Alberta thermal heavy oil plant.
Rapid expansion in gas based power plants
Wood Group expects Gas Turbine Services to continue to be the leading independent maintenance provider for industrial gas turbines. Approximately 85% of revenue is derived from operational support activity and the company anticipates a resilient aftermarket performance in 2009. Wood Group’s ability to locate, refurbish, install, warrant, operate and maintain equipment has secured a number of contracts to provide fast-track power packages in various locations including Ghana, Pakistan and the US. Wood Group is rapidly expanding it’s services in Asia-Pacific with a clear objective to increase it’s EBITA margin to 10% by 2010.
Technical Outlook
On daily chart, stock is trading above resistance of 230.0p and is above 20 and 50 day EMA indicating a bullish signal. Momentum oscillator MACD is positive and RSI is above 50 indicating strength in trend. Both indicators are making an upward trend with positive slope. 14 day positive DMI is above 14 day negative DMI supporting uptrend. Stock has resistance at 270.0p and support near 175.0p.
Trading strategy
Stock can be bought near 225.0p with a profit target of 250.94p and stop loss of 213.72p (Hedge position: short position in spread betting with £5.55 bet per point).
BATS PLC
BATS has hit stop loss of 1586.23p and is trading near stop loss. 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.
Babcock PLC
On daily chart, Babcock is consolidating around 450p and trading above 20 day EMA indicating short-term uptrend. MACD is negative but 12 day EMA has cross above 26 day EMA indicating a positive trend forming. 14 day RSI is also above the oversold zone of 30 with a positive slope indicating a positive trend forming. Stock has support between 417–423.0p and resistance is at 496–513.0p. Looking at stock consolidation profit should be booked at 470.0p.
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.
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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.
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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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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.
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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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