| Sector |
Support services |
Last closing price
(06/07/2009) (p) |
469.75 |
| 52 week High/Low (p) |
650/306 |
| Market Cap (£bn) |
1.09 |
Sector weight age by
Market Cap (%) |
2.12 |
| Average Volume (k) |
572.4 |
| P/E ratio (TTM) |
12.85 |
Industry P/E
ration (TTM) |
2.52 |
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 divided into different divisions such as Defence, Engineering and Naval services – and has businesses across Europe, Africa and North America.
Strong order book
In a final year statement released in May 2009, Babcock’s order book increased by 90% to £5.7bn and the bid pipeline remains strong, providing long-term revenue visibility. Among the new deals announced in February, Babcock was awarded the Long Overhaul Period and Refuel 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, which represented a significant opportunity to extend its position in the military training market. In July 2008 Babcock also won manufacturing contracts worth £675m to construct the bow sections and carry out the assembly and completion of the ships at the Rosyth dockyard. The firm was then awarded a five-year contract with the Canadian government worth C$250m (£125m) to provide in-service support for their Victoria class submarines; a deal which marked 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 the group, delivered a 47% increase in profits due to a full contribution from acquisitions and from cost saving initiatives. Its nuclear division saw operating profits rise 128% as it benefited from the integration of a recently purchased civil nuclear business. The group’s funding position is good and there are no refinancing requirements until 2012. By the end of the 2009/10 financial year Babcock expects efficiency and synergy savings to be running at the rate of £14m a year, while also maintaining a high level of service.
Technical outlook
On daily chart, Babcock is making a triple top between 502.0p and 457.0p, giving a sell signal and is supported by trading below 20 day and 50 day EMA (exponential moving average). MACD (moving average convergence /divergence) is positive but 12 day EMA has cross below 26 day EMA indicating a negative trend is forming. 14 day RSI (relative strength index) is also below 50 indicating weakness in trend and negative DMI (directional moving index) is crossing above positive DMI, which indicates a negative trend is forming. Stock has support between 496.0p-513.0p and resistance at 407.0p-423.0p.
Trading strategy
The stock can be sold around 480p with a profit target 424.65p and stop loss of 504.06p (Hedge position: long position in spread betting with £2.60 bet per point).
| Sector |
Software & computer services |
Last closing price
(06/07/2009) (p) |
731 |
| 52 week High/Low (p) |
1640/449.5 |
| Market Cap (£mn) |
495.08 |
Sector weight age by
Market Cap (%) |
2.76 |
| Average Volume (k) |
309.19 |
| P/E ratio (TTM) |
11.78 |
Industry P/E
ration (TTM) |
72.03 |
TTM: Trailing Twelve Month
Daily chart (AVV.L)
Business background and investment rationale
Aveva Group PLC develops computer software and services for engineering and related solutions. The company provides engineering information technology software to the plant, power and marine industries.
Growth in emerging markets
In a final year result announced in May 2009, Aveva saw strong trading in its principal markets of oil & gas and power & marine across all regions. Total revenue increased by 29% to £164m and initial licence fees were £57.7m compared with £52.9m in 2008. Asia Pacific continues to be the main driver in these areas, with initial fees of £36.8m, £3m higher than 2008, mainly due to the success of the marine business in China and Korea. Central, Eastern and Southern Europe also generated significant initial fees of £16.5m, which compares with £13.1m in 2007/08. The Americas, Western Europe, Middle East and Africa are more mature markets for Aveva which is reflected in the relatively higher level of recurring fees. Recurring revenue increased from £66.1m to £94.2 m and represents 57% of total revenue, a rise of 5% on last year.
Restructuring and acquisition
In April 2009, the group combined its two sales regions - Central, Eastern, Southern and Western Europe, along with Middle East and Africa - into one combined region of Europe, Middle East and Africa with immediate effect. Aveva has also reduced headcount across the business by approximately 10%. These initiatives will result in annualised cost savings of around £5m, while the exceptional costs of implementing them will be around £3.5m to be incurred in the first half of 2009/10. To increase its presence in Asia Pacific, Aveva acquired iDesign Office Pty Limited, a small Australian software company specialising in instrumentation software for total consideration of £1.7m.
Technical outlook
On daily chart, Aveva is trading on a positive slope consolidating at the top between 700.0p and 756.0p. If stock holds these levels for a week, a higher move can be expected above 756.0p. On technical, MACD is positive and 12 day EMA is above 26 day EMA indicating uptrend. 14 day RSI is above 50 showing strength in trend. 14 day ADX(average directional moving index) is near 20 supporting consolidation. Stock needs some consolidation before a higher move as stochastic is indicating short-term overbought. Stock is also above 20 day and 50 day EMA which supports strength in trend. Stock has support at 643.0p and resistance at 758.0p level.
Trading strategy
The stock can be bought around 710p with a profit target 791.86p and stop loss of 674.4p (Hedge position: short position in spread betting with £1.75 bet per point).
Game Group PLC
Game hit stop loss of 150.07p forming a downward and making a low of 133p. Stock has made a strong negative trend as it falls below strong support of 150.0p. MACD is negative and 12 day EMA is below 26 day EMA indicating formation of downtrend. 14 day RSI (relative strength index) is below 50, and trading is near the oversold level and 14 day negative DMI is way above 14 day positive. ADX is above 23 indicating formation of downtrend. All positions should be closed for the stock.
John Wood Group PLC
On daily chart, stock is trading its entry level of 255.0p after making a high of 282.0p near to its profit target of 284.4p. Momentum oscillator MACD is negative and 12 day EMA has cross below 26 day EMA indicating weakness in uptrend. RSI has rebounded from the oversold level indicating weakness in downtrend. 14 day negative DMI is above 14 day positive DMI, but ADX is near 20 indicating some consolidation at 250.0p. If stock has to make an uptrend it should consolidate above 250.0p. Looking at negative trend profit should be booked at 266.0p.
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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.
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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 April to 30th June 2009:
| |
% Distribution of recommendations |
No of recommendation |
| Buy |
95.5% |
21 |
| Hold |
0 |
0 |
| Sell |
4.5% |
1 |
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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