| Sector |
Food producer |
Last closing price
(01/09/2009) (p) |
791.5 |
| 52 week High/Low (p) |
835/590 |
| Market Cap (£bn) |
6.35 |
Sector weight age by
Market Cap (%) |
12.85 |
| Average Volume (mn) |
1.03 |
| P/E ratio (TTM) |
21.52 |
Industry P/E
ration (TTM) |
12.5 |
TTM: Trailing Twelve Month
Daily chart (ABF.L)
Business background and investment rationale
Associated British Foods PLC can be categorised into four segments: Grocery, Primary Food and Agriculture, Ingredients and Retail. The group has sales worldwide and manufacturing operations across Europe, North America, Asia, Australia and New Zealand.
Strong retail growth in Primark
In an interim management statement announced on 7 July 2009, sales at Primark for the half-year were 21% ahead of last year. This brings the year to date increase to 20%, reflecting an increase in retail selling space and excellent like-for-like sales growth despite difficult trading conditions in UK clothing. As of 20 June 2009 AB Foods owned 190 stores with 5.7m sq ft of selling space. Since the half-year AB Foods opened its first German store in Bremen, its first Portuguese outlet in Lisbon and a new store in Barcelona, bringing the number of Spanish stores to 13.
Increase revenue on higher sugar prices
Sugar revenues in the third quarter were 19% ahead of last year following the acquisition of Iberia’s leading sugar producer Azucarera Ebro. Excluding the sales of Azucarera, sugar revenues were 7% ahead driven by the growth in Illovo, especially following expansion of capacity in Zambia, Malawi and Mozambique, and the increasing strength of the euro in the EU sugar businesses.
Weakness in sterling boosting revenue
Group revenue for the 40 weeks to June 2009 was 19% ahead of the same period last year (8% ahead on a constant currency basis). The weakness of sterling, particularly against the euro and US dollar, has been a major feature of the period with Grocery and Ingredients proving the main beneficiaries of currency translation. In the Ingredients division revenues were 18% ahead in third quarter. AB Food’s yeast and bakery ingredients business AB Mauri performed well with higher volumes, improved pricing and good progress in yeast sales in South America.
Technical outlook
On daily chart, ABF has rebounded from a 52 week high and is trading below its positive slope indicating a downtrend is forming. MACD (moving average convergence/divergence) is positive, but 12 day EMA (exponential moving average) is below 26 day EMA indicating weakness in uptrend. 14 day RSI (relative strength index) is below 50 showing weakness in uptrend. 14 day positive DMI (directional moving index) is above 14 day negative and ADX is near 20 indicating consolidation. For a higher move stock has to close above 800.0p and stock can fall to 765.0p if it can’t hold 788.0p. Stock is also trading below 20 day EMA which supports weakness in trend.
Trading strategy
The stock can be sold around 810.0p with a profit target 716.6p and stop loss of 850.6p (Hedge position: Long position in spread betting with £1.54 bet per point).
| Sector |
|
Last closing price
(01/09/2009) (p) |
639 |
| 52 week High/Low (p) |
938/415 |
| Market Cap (£mn) |
641.2 |
Sector weight age by
Market Cap (%) |
1.06 |
| Average Volume (k) |
268.23 |
| P/E ratio (TTM) |
7.55 |
Industry P/E
ration (TTM) |
2.07 |
TTM: Trailing Twelve Month
Daily chart (ATK.L)
Business background and investment rationale
WS Atkins PLC is one of the world’s leading design and engineering consultancy in the UK. The firm delivers engineering and design to a range of clients in the public, regulated and private sectors. The Middle East business provides design and engineering services for buildings, transportation and other infrastructure.
High visibility of future earnings
In a full-year result announced in June 2009, Atkins’ revenues were up by 13.2%, while normalised diluted earnings per share were up 23%. The firm continued to make further increases in operating margin from 6.6% to 6.9%. Atkins’ outlook for the rest of the year remains good as 54% of budgeted revenue has been secured. Despite the recent slowdown in the UK economy, Atkins is not experiencing any material impact within its UK-based businesses, which generate around 75% of the group’s revenues. The majority of group work is for clients within the public and regulated sectors where infrastructure investment is publicly committed. Atkins is adjusting its workforce in deteriorating markets, such as its water business and building design in the UK. The Middle East business, which represents more than 10% of the group, is performing well with operating profit up by 82% at £17.3m. Atkins’ cash position remains strong with net funds of £234.2m and the cash inflow in the period was also strong with cash generated from operations reaching £125.2m.
New contracts win
In the design and civil engineering business, Atkins has secured a number of major projects. These include a five-year contract to provide design services for the provision of residential and training facilities for the Royal School of Military Engineering, and a number of awards under the Learning and Skills Council (LSC) framework. In the highway services business, mobilisation for the Highways Agency Area 6 MAC contract, which commenced on 1 June 2008, was successfully achieved. In addition, Atkins was awarded a five and a half year contract (extendable to nine and a half years) by Bath and North East Somerset County Council, which will commence in October 09. In aerospace, Atkins won further contracts with Airbus on the A330 and A400m, confirming the success of the acquisition of Nedtech last year.
Technical outlook
On daily chart, Atkins has formed a round bottom between 631.0p and 511.0p with higher low and is trading in an upside breakout range of 631.0p indicating uptrend. Stock has strong support near 570.0p and resistance near 742.0p, and it has to hold above 600.0p for a higher move. MACD is positive and 12 day EMA has cross above 26 day EMA indicating strength in uptrend. 14 day RSI (relative strength index) is above near 50 showing strength in trend. 14 day positive DMI (directional moving index) is above 14 day negative and ADX is near 20 indicating some consolidation. 20 day EMA has cross above 200 day EMA supports strength in trend.
Trading strategy
The stock can be bought around 615.0p with a profit target 685.3p and stop loss of 584.4p (Hedge position: Short position in spread betting with £2.04 bet per point).
Logica
Logica has been trading in a tight range of 113.0p and 118.0p last week, and is making a lower low which is an encouraging sign. MACD is positive but 12 day EMA has cross below 26 day EMA, indicating a smaller pullback. 14 day RSI has cross below the overbought zone of 70 indicating a sell signal on the stock. 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 weakness in the market, profit should be booked at 105.0p.
Aveva Group PLC
On daily chart, Aveva is forming a channel between 800.0p and 870.0p with a lower low which is an encouraging sign for sell off. MACD is still positive but 12 day EMA has cross below 26 day EMA, indicating pull back in uptrend. 14 day RSI is above 50 but making a negative slope supporting downtrend. 14 day ADX is near 30 supporting strong upward movement recently. If stock falls below 800.0p a lower low can be expected for the stock. Stock should be hold with new profit target of 760.0p.
Rolls-Royce Group PLC
Rolls-Royce hit stop loss of 458.9p on a whipsaw in a morning trend. The trend is still indicating a sell signal as RSI has cross below overbought zone 70, while in MACD 12 day EMA has cross below 26 day EMA.14 day ADX is near 30 and declining. All positions should be closed for the stock.
Cairn Energy PLC
Cairn Energy hit a stop loss of 2455.0p on weak oil prices and again stock is trading in a range of 2351.0p and 2510.0p. MACD is positive but 12 day EMA has cross below 26 day EMA, indicating recent pullback. 14 day RSI is below 50 showing weakness in trend. 14 day ADX is near 20 indicating consolidation. Stock has also fallen below 20 day EMA indicating a downtrend is forming. All positions should be closed for the stock.
Babcock International Group PLC
Babcock’s channel between 502.0p and 457.0p is intact, 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 is also above 50 indicating strength in trend and positive DMI is crossing above negative DMI, which indicates a positive trend is forming. Stock should be hold with the same profit target.
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.
The report is provided solely for your information and may not be reproduced or redistributed, in whole or in part to any other person without specific consent of CSS Partners.
In the preparation of this report, CSS Partners has had access to publicly available information and other sources believed to be reliable. Whilst reasonable care has been taken to ensure that the facts stated herein are accurate and that the recommendations, forecasts, opinions and expectations contained herein are fair and reasonable, neither the author, nor CSS Partners, nor CSS has verified the public information upon which this is based. None of the author, CSS Partners, CSS or any of their respective directors, officers or employees (the “Parties”) makes any representation or warranty, express or implied as to soundness of the recommendation, the accuracy or completeness of the information or opinions contained herein. Investors must make their own investment decision and not rely on this report. The Parties shall not be liable for any loss, costs, liability, expenses (together “losses”) suffered by you following your utilising any of the services we provide other than losses arising directly as a result of fraud or wilful default on our part or as a result of any liability that may not be excluded under the UK regulatory system. In no event shall we be liable for special, indirect or consequential damages of any kind, even though we may have been informed about the possibility of such loss. You shall indemnify us and our officers and employees on demand and keep all such persons indemnified against all losses which may be incurred directly or indirectly by reason of or in consequence of providing this service save to the extent that such losses arise directly as a result of our, fraud or wilful default.
Any opinions, forecasts or estimates herein constitute a judgment as at the date of this report. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. This information is subject to change without notice. It may be incomplete or condensed and it may not contain all material information concerning the Company. This document does not constitute or form part of and should not be construed as any offer for sale or purchase of (or solicitation of or invitation to make any offer to buy or sell) any securities nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever.
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.
In accordance with section 12.4 of the FSA’s New Conduct of Business Rules, CSS Partners makes the following disclosures:
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.
The analyst is not involved in any other activity of CSS Partners or CSS that is inconsistent with his objectivity in preparing the reports. His research information is confidential, the only persons privy to this data bar the analyst are senior management. The research recommendations will be updated, but neither CSS nor CSS Partners accept any responsibility for any delay or interruption of service in the submission of reports or updates to reports.
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.
