| Sector |
Oil & gas producers |
Last closing price
(24/08/2009) (p) |
2623 |
| 52 week High/Low (p) |
2986/1125 |
| Market Cap (£bn) |
3.58 |
Sector weight age by
Market Cap (%) |
1.32 |
| Average Volume (k) |
553.56 |
| P/E ratio (TTM) |
15.99 |
Industry P/E
ration (TTM) |
10.9 |
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 28 oil fields in Rajasthan of which 16 are completed. The Cairn Mangala, Bhagyam and Aishwariya (MBA) development project is on track with production starting in August 2009. Until the company completes its pipeline project, Cairn Energy is using trains and trucking logistics to take the first oil delivery of 30,000 bopd (barrels of oil per day) from its Mangala production to the refineries. Construction of the second and third phases of the Mangala Processing Terminal (MPT) is also underway. The company plans to use trains to deliver a total of 205,000 bopd. The second phase of the Mangala production will commence Q4 this year via an export pipeline, with a delivery capacity of 50,000 bopd. The third phase of Mangala’s production will commence in the first half of 2010, with a capacity of 50,000 bopd, and is scheduled to reach a 125,000 bopd plateau. This will increase in 2011 to a plateau of 175,000 bopd, as production will be increased in four stages.
Increase in construction and 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 infrastructure and refinery network. 520km of the total 600km pipeline from the MPT to Salaya in Gujarat, has been welded and more than 400km has been laid below ground. More than 70% of the construction activities have been completed at all of the 32 heating stations on the pipeline’s route. 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 awarded Cairn India with a block of water covering 3000km2 for exploration of oil and natural gas in the Mannar Basin. Its subsidiary, Capricorn, has acquired a leading acreage position offshore of West and Southern Greenland and is in the process of building a 10,000km 2D seismic underway. Recently the Iraqi Government announced that Cairn has pre-qualified to participate in the second round of bids (greenfield) and therefore all subsequent bids.
Technical outlook
On daily chart, Cairn has broken out from a range of 2351.0p and 2510.0p and is making a positive slope from the July 2009 low of 2046.0p. MACD (moving average convergence/divergence) is positive and 12 day EMA (exponential moving average) has cross above 26 day EMA, indicating recent breakout upside. 14 day RSI (relative strength index) is above 60 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. Stock has strong support near 2500.0p and resistance near 3000.0p.
Trading strategy
The stock can be bought around 2570p with a profit target 2801p and stop loss of 2455p.
| Sector |
|
Last closing price
(24/08/2009) (p) |
498.3 |
| 52 week High/Low (p) |
619.5/306 |
| Market Cap (£bn) |
1.16 |
Sector weight age by
Market Cap (%) |
1.9 |
| Average Volume (k) |
572.4 |
| P/E ratio (TTM) |
13.59 |
Industry P/E
ration (TTM) |
2.07 |
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 including Defence, Engineering and Naval services, and has businesses across Europe, Africa and North America.
Strong order book
In the 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 during the economic downturn, 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 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 channel between 502.0p and 457.0p, making a higher low indicating a buy signal and is supported by trading above 20 day and 50 day EMA. MACD is positive and 12 day EMA has cross above 26 day EMA indicating a positive trend is forming. 14 day RSI (relative strength index) is also above 50 indicating strength in trend and positive DMI is crossing above negative DMI, which indicates a positive trend is forming. Stock has support between 470.0p and resistance at 550.0p.
Trading strategy
The stock can be sold around 490p with a profit target 546.3p and stop loss of 465.4p (Hedge position: long position in spread betting with £2.55 bet per point).
Compass Group PLC
On the daily chart, Compass hit the reduced profit target of 320.0p after falling below 310.0p and hitting last week’s profit target of 330.0p. MACD is negative and 12 day EMA has cross above 26 day EMA, indicating that prices will go up further. 14 day RSI is above 50 indicating a rebound in share prices. All positions should be closed for the stock.
Autonomy PLC
Autonomy hit a reduced profit target of 1280.0p and is trading above 1330.0p indicating a short-term bottom has formed near 1200.0p. Stock is above 50 and 200 day EMA indicating positive trend. Momentum oscillator MACD is positive and 12 day EMA has cross above 26 day EMA indicating uptrend. 14 day RSI is below 50 and making higher lows and stochastic is above 70 indicating a short-term positive trend is forming. All positions should be closed for the stock.
Logica
Logica rebounded from 117.0p and didn’t make a new high which was an encouraging sign. MACD is positive, but 12 day EMA has cross below 26 day EMA indicating a smaller pullback. 14 day RSI is at 75 above the overbought zone of 70 indicating a 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. Looking at current strong trends in the market, profit should be booked at 110.0p.
Aveva group PLC
On daily chart, Aveva has rebounded from a low of 800.0p and is trading near to its month high of 866.0p. MACD is still positive, but 12 day EMA has cross below 26 day EMA indicating consolidation. 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. Stock should be hold with a profit target of 815.0p.
Rolls-Royce group PLC
The stock is looking overbought on most technical indicators after a small dip to 420.0p. MACD is positive and 12 day EMA is above 26 day EMA. RSI is above 70 and near its previous high with the recent incline in prices. 14 day ADX is near 30 and inclining. Stock has already breached the resistance level of 450.0p and is very near to stop loss. Stock should be hold with profit target of 430.0p.
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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.
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 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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