| Sector |
Aerospace and defense |
Last closing price
(17/08/2009) (p) |
429.2 |
| 52 week High/Low (p) |
442.7/231.14 |
| Market Cap (£bn) |
8.06 |
Sector weight age by
Market Cap (%) |
29.74 |
| Average Volume (mn) |
7.44 |
| P/E ratio (TTM) |
41.39 |
Industry P/E
ration (TTM) |
8.76 |
TTM: Trailing Twelve Month
Daily chart (RR.L)
Business background and investment rationale
Rolls-Royce Group PLC is a global business providing power systems for use on land, sea and air. It operates in five segments: Civil Aerospace, Defence Aerospace, Marine, Energy and Financial Services.
Resilient performance in economic downturn
Despite the challenging external environment and the impact of continuing delays on the Airbus A380 and Boeing 787 programmes, Rolls-Royce’s order book hit a record £57.5bn in the first half of 2009 an increase of £2bn on the same period last year. Group revenues increased to £5.14bn compared with £4.04bn in the first-half of 2008. Service revenues also increased by 8% reaching £2.4bn on an underlying basis. This allowed the group to pay 6.0p per share as an interim payment to shareholders; an increase of 5% on 2008. Rolls-Royce expects global air travel and airfreight to be adversely impacted by the economic downturn and it continues to expect engine deliveries to fall in 2009, whilst maintaining stable service revenues. The Marine business performed well despite challenging trading conditions. Activity in the offshore oil and gas sector remains encouraging with continued deepwater developments in a number of major offshore locations including Brazil, West Africa and Russia. The group’s order book stands at £4.3bn in first half of 2009 with new orders of £600m and modest cancellations of £250m.
Investment in growth and a strong financial position
Rolls-Royce announced significant investments in its operational capacity and capability with the development of four new facilities in the UK for discs, military fan blades, single crystal castings and civil nuclear components at a total cost of £300m. Rolls-Royce will also construct a new civil wide chord fan blade facility in Singapore to complement the existing capability at Barnoldswick in the UK. The group finished the first-half of 2009 with a net cash balance of more than £1bn and had an average cash position of £760m over the period.
Technical outlook
The stock has risen 35% which is a steep climb from a low of 320.0p, and is looking overbought on most of technical indicators. MACD (moving average convergence /divergence) is positive and the 12 day EMA (exponential moving average) gap is closing up with 26-day EMA. RSI (relative strength index) is near 70 and not making a new high with the recent incline in prices. 14 day ADX (average directional moving index) is near 30 but declining indicating that the positive trend needs consolidation. If stock can’t break its support level of 450.0p a lower move can be expected to 400.0p.
Trading strategy
Stock can be sold near 437p with a profit target of 386.6p and stop loss of 458.9p (Hedge position: Long position in spread betting with £2.85 bet per point).
| Sector |
Software & computer services |
|
Last closing price
(17/08/2009) (p) |
806.5 |
| 52 week High/Low (p) |
1490/449.5 |
| Market Cap (£mn) |
579.9 |
Sector weight age by
Market Cap (%) |
2.96 |
| Average Volume (k) |
221.6 |
| P/E ratio (TTM) |
13.79 |
Industry P/E
ration (TTM) |
7.02 |
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 thanks 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 Central, Eastern, Southern and Western Europe sales region with the Middle East and Africa into one Europe, Middle East and Africa region. The firm also reduced headcount across the business by approximately 10%. These initiatives will result in annualised cost savings of around £5m, while the exceptional implementation costs 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 consolidating at new a high this month with a decline in prices indicating stock will fall as MACD is positive, but 12 day EMA has cross below 26 day EMA indicating downtrend forming. 14 day RSI is above 50 but making a negative slope supporting downtrend. 14 day ADX is near 30 supporting strong upward movement recently. Stock has support at 1000.0p and resistance at 711.0p level.
Trading strategy
The stock can be sold around 830p with a profit target 734.3p and stop loss of 871.6p (Hedge position: long position in spread betting with £1.5 bet per point).
WS Atkins PLC
On daily chart, WS Atkins hit the reduced profit target of 635.0p and is giving a sell signal after making a lower high of 641.0p. MACD is still positive and 12 day EMA is below 26 day EMA indicating downtrend. 14 day RSI is below 50 showing weakness in trend. 14 day negative DMI is above 14 day positive and ADX is near 20 indicating downtrend starting. All position should be closed for the stock.
Compass Group PLC
On daily chart, Compass looks oversold as it has fallen below entry price of 315.0p and declining with new low indicating sell signal. MACD is negative and 12 day EMA cross below 26 day EMA indicating that prices will slump further. 14 day RSI is near 30 and in the oversold zone indicating slump in prices. Looking at the decline in prices stock should be hold with reduced profit target of 320.0p.
EasyJet PLC
EasyJet profit was booked at 323.0p as stock looks overbought on the daily chart after it made a steep high of 327.0p. MACD is positive and 12 day EMA is above 26 day EMA indicating uptrend. RSI is above 70 and stochastic near 94 indicating overbought of stock. All positions should be closed for the stock.
Bellway PLC
On daily chart, Bellway completed a ‘U’ Pattern between 800.0p and 600.0p, and broke out above the profit target of 800.0p making a new high of 857.0p indicating a bottom has formed in the stock. Momentum oscillator MACD is positive and 12 day EMA is above 26 day EMA indicating strength in trend. RSI is near 70 indicating an overbought trend. 14 day positive DMI is above 14 day negative DMI supporting uptrend. All positions should be closed for the stock.
Autonomy PLC
Last week Autonomy reached a new weekly high and cross above 1300.0p indicating a short-term bottom has formed near 1200.0p. Stock also has cross above 50 and 200 day EMA indicating positive trend. Momentum oscillator MACD is negative and 12 day EMA has cross above 26 day EMA indicating uptrend .14 day RSI is below 50 and making higher lows and stochastic above 70 indicating short-term positive trend forming. Looking at the negative trend in the general market and the recent big slump in prices from 1300.0p, profit should be booked for the stock at 1280.0p.
Logica
Last week Logica rebounded from 117.0p and didn’t make a new high which was an encouraging sign. MACD is positive and at historical high of 8 indicating a strong positive trend. 14 day RSI is at 90 above the overbought zone of 70 indicating steep rise. Positive DMI is way above negative DMI, which indicates a strong positive trend confirmed by ADX near 60. If the stock falls below 110.0p, a new low can be expected. Logica should be hold with same profit target of 103.5p
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 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.
Your attention is also directed to the terms of our client agreement with you that covers the provision of this service. To the extent that there is any conflict between the above and the client agreement, the provisions of the above disclaimer will take priority.
