| Sector |
General Retailers |
Last closing price
(08/06/2009) (p) |
248 |
| 52 week High/Low (p) |
286/156.25 |
| Market Cap (£bn) |
2.21 |
Sector weight age by
Market Cap (%) |
7.96 |
| Average Volume (mn) |
6.26 |
| P/E ratio (TTM) |
– |
Industry P/E
ration (TTM) |
1.83 |
TTM: Trailing Twelve Month
Daily chart (HOME.L)
Business background and investment rationale
Home Retail Group PLC sells home and general merchandise and is organised into three main business segments: Argos, Homebase and Financial Services together with Central Activities. Argos offers customers a catalogue of over 18,000 product lines which are available across all order and delivery channels. Homebase sells a range of home enhancement products and services alongside traditional do-it-yourself products and materials.
Stable outlook for Home Retail
In a full year result announced in April 2009, Home Retail total sales were £5.897bn which marked a fall of 1% from £5.985bn in 2008. Like-for-like sales were down 4.8% at Argos and 10.2% at Homebase. The group’s gross margin was down 81 basis points following an approximate 100 basis point reduction at Argos which was offset by an estimated 25 basis point increase at Homebase, led by further sourcing and supply chain gains. The strength of the group’s balance sheet, along with consistent market share gains and severe weakness in some competitors, suggest that Home Retail is better managed and more defensive than its peers. Home Retail will use its balance sheet to be more flexible with expansion, buying terms, space deals and even acquisitions, with a net cash increase of £110m to £284m at 28 February 2009. The company is set to benefit from further good working capital management and a reduced level of capital expenditure.
Improvement in operating performance
In a particularly difficult trading environment, Home Retail managed costs and cash very effectively to limit the impact on profits. The group continues to develop a broad product range and is benefiting further from advantaged sourcing operations and investment in multi-channel operations which have strengthened its position as the UK’s leading home and general merchandise retailer. The group has already made a number of organisational changes across the business to deliver annualised cost savings of approximately £50m, of which around £35m will be achieved in the new financial year. The group will invest capital selectively so its businesses will emerge from the consumer downturn in a strong position. This will include around 20 new stores at Argos and approximately five at Homebase in the new financial year.
Technical outlook
On daily chart, Home Retail is making a positive slope with a higher low from the November 2008 low, which is an encouraging sign. MACD (moving average convergence/divergence) is negative, but 12 day EMA (exponential moving average) has cross above 26 day EMA, indicating an uptrend forming. 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 25 indicating uptrend. Stock is also above 20 day and 50 day EMA which supports strength in trend. For an uptrend stock has to close about 250.0p. Stock has strong support near 283.0p and resistance near 233.0p.
Trading strategy
The stock can be bought around 242.0p with a profit target 269.9p and stop loss of 229.86p (Hedge position: short position in spread betting with £5.16 bet per point)
| Sector |
Support services |
Last closing price
(08/06/2009) (p) |
133 |
| 52 week High/Low (p) |
207/112.5 |
| Market Cap (£mn) |
474.85 |
Sector weight age by
Market Cap (%) |
0.91 |
| Average Volume (k) |
977.5 |
| P/E ratio (TTM) |
9.19 |
Industry P/E
ration (TTM) |
8.0 |
TTM: Trailing Twelve Month
Daily chart (PFL.L)
Business background and investment rationale
Premier Farnell PLC distributes electronic, electrical and industrial products to the design, maintenance and repair sectors. The company has two segments: the Marketing and Distribution Division (MDD), comprising the Americas, Europe and Asia Pacific; and the Industrial Products Division (IPD).
Strong growth in the emerging markets
In a final result announced in March 2009, Premier recorded strong sales growth in developing markets during the fourth quarter. Eastern Europe and China grew 57.7% and 14.8% respectively over the quarter, while India was up 23.8% sequentially. In Eastern Europe, the group completed acquisition of part of the trading rights and assets of Microdis, an authorised distributor for Farnell, expanding customer reach into Poland, Hungary and the Czech Republic.
Cost saving measures
Premier anticipates that using web transition over the next two years will enable it to reduce operating expenses by 2% as a percentage of sales, which amounts to approximately £16m. Premier has already started this work and in the fourth quarter the group reduced its global employee headcount by nearly 300 positions. The annualised benefit of the action already taken equates to approximately £12m, of which £4m was achieved through the benefit of web transition. In 2009 the group took further action to restructure its branch network in North America and rationalise its structure in Europe. Premier anticipates this action will deliver further savings on an annualised basis of £6m and result in a one-off cost in the first quarter of £4m. The group also maintained gross margin for the full year of 39.6%, compared to 39.7% in the prior year, which represents gross margin stability over three full years.
Technical outlook
On daily chart, stock has rebounded from its high of 163.0p and is trading near the 126.0p–132.0p range. If it doesn’t consolidate at this level, the next level of support can be found near 115.0p. MACD is negative and RSI is below 50, and trend for both indicators are negative and stochastic is below 20 indicating oversold for short term. 14 day negative DMI is above 14 day positive indicating downtrend. Stock has resistance near 150.0p and support can be found near 115.0p.
Trading strategy
The stock can be bought around 130.0p with a profit target 144.98p and stop loss of 123.48p (Hedge position: short position in spread betting with £9.61 bet per point)
BATS PLC
BATS was consolidating between 1650.0p and 1700.0p. Trend for the stock looks neutral as MACD is positive and 12 day EMA has cross below 26 day EMA, indicating consolidation. 14 day RSI is above 50 showing strength in trend. It is also trading above 20 day and 50 day EMA, supporting an uptrend. 14 day positive DMI is above 14 day negative DMI and DMI is near 20 which supports consolidation. If stock holds a strong support level of 1650.0p a higher move can be expected, with support between 1665.0p–1591.0p and resistance at 1820.0p and 1940.0p levels. Stock should be a hold with a reduced profit target of 1750.0p.
Johnson Matthey PLC
On daily chart, Johnson has rebounded from a high of 1300.0p and is trading near support of 1200.0p, indicating pull back in uptrend. MACD is positive and 12 day EMA has cross below 26 day EMA, also indicating pull back in uptrend. 14 day RSI is above 50 showing strength in trend. 14 day negative DMI is above 14 day positive and DMI is near 20 indicating forming downtrend. Stock is above 20 day and 50 day EMA which supports the short term trend is still intact for upside. Stock has strong support near 1150.0p and resistance near 1350.0p. Stock should be a hold with reduced profit target of 1300.0p.
Bellway PLC
On daily chart, Bellway is still in consolidation phase between 640.0p and 670.0p indicating the negative trend has stabilised. Momentum oscillator MACD is negative and 12 day EMA is below 26 day EMA indicating downtrend intact. RSI is below 50 indicating weakness in trend. 14 day negative DMI is above 14 day positive DMI supporting downtrend. Looking at trend, profit should be booked at reduced profit target of 675.0p.
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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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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.
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Distribution of recommendations for the period 1st January to 31st March 2009:
| |
% 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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