| Sector |
Oil & gas producers |
Last closing price
(30/03/2009) (p) |
2063 |
| 52 week High/Low (p) |
3733/1125 |
| Market Cap (£bn) |
2.88 |
Sector weight age by
Market Cap (%) |
1.18 |
| Average Volume (mn) |
1.01 |
| P/E ratio (TTM) |
10.15 |
Industry P/E
ration (TTM) |
3.6 |
TTM: Trailing Twelve Month
Daily chart (CNE.L)
Business background and investment rationale
Cairn Energy PLC is an oil and gas exploration company. The firm’s operating activities are organised into two distinct sub-groups, which comprise the Capricorn Group and the Cairn India Group. The Capricorn Group’s operations focus on the company’s South Asian assets in Bangladesh and Nepal, together with new exploration activities in Tunisia and the rest of the world. The Cairn India Group’s operations are entirely within India.
Cairn India to commence oil production in 2009
Cairn has discovered 25 oil fields in Rajasthan of which the largest three are Mangala, Bhagyam and Aishwariya. The Cairn Mangala, Bhagyam and Aishwariya (MBA) development project is on track and funded to deliver it’s first oil from the core Mangala development in the second half of 2009. Construction of the Mangala Processing Terminal (MPT) is underway with plans for four processing trains targeting a capacity of 205,000 barrels of oil per day (bopd). There is further scope for expansion. Until the company completes it’s pipeline project in Northern India, Cairn Energy will use hundreds of lorries to take the first oil (30,000 bopd) from it’s Mangala production to the refineries. Additional Mangala production through trains (50,000 bopd capacity) is to commence in Q4 2009, via an export pipeline. Mangala’s production is scheduled to reach a 125,000 bopd plateau after the train (50,000 bopd capacity) commences in the first half of 2010. Production will be increased in four stages, reaching a plateau of 175,000 bopd in 2011.
Increase in exploration activity
Cairn India is on track for the construction of a 600km insulated and heated pipeline which will allow access to an extensive, existing pipeline infrastructure and refinery network. The pipeline has a final coastal delivery point that also affords access to the majority of India’s refining capacity. In exploration activity, the Government of Sri Lanka has awarded Cairn India with a block of water covering 3000km2 for exploration of oil and natural gas in the Mannar Basin. It’s subsidiary, Capricorn, has acquired a leading acreage position offshore West and Southern Greenland and is in the process of building a 10,000km 2D seismic is underway. In March 2009 Cairn Energy raised £116m from institutions by placing 6.5 million shares at 1775.0p, thereby reducing it’s reliance on troubled credit markets and freedom for further exploration activities.
Technical outlook
On daily chart, Cairn is trading in a channel of 1700.0p and 2100.0p making a positive slope from the November 2008 low, which is an encouraging sign. MACD (moving average convergence/divergence) is positive and 12 day EMA (exponential moving average) has cross above 26 day EMA, indicating an uptrend. 14 day RSI (relative strength index) is above 50 showing strength in trend. 14 day positive DMI (directional moving index) is above 14 day negative and DMI is near 20 indicating consolidation. Stock is also above 20 day and 50 day EMA which supports strength in trend. Stock has strong support near 1400.0p and resistance near 2500.0p.
Trading strategy
The stock can be bought around 2000.0p with a profit target 2230.6p and stop loss of 1899.7p (Hedge position: Short position in spread betting with £0.625 bet per point).
| Sector |
Household goods and home construction |
Last closing price
(30/03/2009) (p) |
648 |
| 52 week High/Low (p) |
932/342 |
| Market Cap (£mn) |
798.46 |
Sector weight age by
Market Cap (%) |
3.26 |
| Average Volume (k) |
809.7 |
| P/E ratio (TTM) |
29.59 |
Industry P/E
ration (TTM) |
0.12 |
TTM: Trailing Twelve Month
Daily chart (BWY.L)
Business background and investment rationale
Bellway PLC and it’s subsidiaries are engaged principally in house building in the UK. The company is a volume house builder selling primarily in the private market and trading nationally in areas of high population. It also acquires and sells second hand homes taken in part exchange.
On target to reduce debt
Primarily Bellway is focused on reducing it’s indebtedness and, at present, is on target to reduce the year-on-year debt position by around £100m to £120m by 31 July 2009. The group continues to operate well within it’s current committed banking facilities of £402m, which were negotiated and agreed in the second quarter of 2008 and extend out in annual tranches to 2015.
Increase discounting to accelerate sales and inline trading
In a trading statement in February 2009, Bellway completed the sale of 2,014 homes in the six months ending 31 January 2009. This compares to 3,252 homes in 2008, with the average selling price reducing from £174,800 to £160,000. The falls are a reflection of increased levels of discounting and the rise of social housing which has increased to 20% of total completions in the period. Cash discounting, part exchange and shared equity have been used as incentives in virtually every private sale to maintain a sales rate in line with the group’s expectations. Margins continue to come under extreme pressure and could fall by more than 50% which compares to 18.1% posted in the six months ended 31 January 2008. At the end of January, Bellway’s order book stood at £296m – compared to £580m in 2008 – of which 70% is contracted. Eighty-nine per cent of the current indicated targeted volume for the year ending 31 July 2009 has been secured.
Increase in mortgage approval rate
Today the Bank of England reported that mortgage approvals rose to a nine-month high of 38,000 in February, up 18.8% from January and compares to a low of 27,000 in November. This reflects improvement in affordability in the wake of the 20% drop in house prices and the sharp reduction in borrowing costs.
Technical Outlook
On daily chart, Bellway has rebounded from it’s high of 718.0p and stock is still above 50 day and 200 day EMA, indicating the long-term uptrend is intact. Stock has also made a higher low and is making a positive slope, which is also an encouraging sign. Momentum oscillator MACD is positive, but 12 day EMA has cross below 26 day EMA indicating weakness in trend. RSI is above 50 indicating strength in trend. 14 day positive DMI is above 14 day negative DMI supporting uptrend. Stock has resistance at 718.0p and support near 553.0p.
Trading strategy
Stock can be bought near 634.0p with a profit target of 707.1p and stop loss of 602.2p (Hedge position: short position in spread betting with £1.97 bet per point).
Babcock PLC
On daily chart, Babcock has hit stop loss of 422.6p making a low of 398.0p. MACD is negative and 12 day EMA has cross below 26 day EMA indicating a negative trend forming. 14 day RSI is also near the oversold zone of 30 indicating weakness in trend. 14 day negative DMI is above 14 day positive DMI supporting downtrend. All positions should be closed for the stock.
Serco Group PLC
On daily chart, Serco is trading just above 350.0p near to its entry level of 355.0p. MACD is negative, and 12 day EMA has crossed above 26 day EMA, indicating a weak uptrend forming. 14 day RSI is below 50 showing weakness in trend. 14 day negative DMI is above 14 day positive which indicates weakness in trend. Stock has strong support near 320.0p and 350.0p and resistance near 400.0p. Looking at no movement for the whole week in the stock, profit should be booked at 375.0p.
John Wood Group PLC
On daily chart, stock is trading below resistance of 230.0p and is below 20 and 50 day EMA indicating a weakness in uptrend. Momentum oscillator MACD is positive and RSI is near 50 indicating strength in trend and consolidation at entry level. 14 day positive DMI is above 14 day negative DMI supporting uptrend. Looking at no movement for the whole week in stock, profit should be booked at 235.0p.
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.
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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