| Sector |
Oil Equipment services & Distributions |
Last closing price
(07/09/2009) (p) |
529.5 |
| 52 week High/Low (p) |
1246/259 |
| Market Cap (£mn) |
513.17 |
Sector weight age by
Market Cap (%) |
5.8 |
| Average Volume (k) |
654.83 |
| P/E ratio (TTM) |
12.51 |
Industry P/E
ration (TTM) |
9.17 |
TTM: Trailing Twelve Month
Daily chart (WSML.L)
Business background and investment rationale
Wellstream Holdings PLC provides pipe solutions to the energy production industry. The company’s portfolio includes offshore products, such as risers and flow lines for deep and ultra-deepwater environments, and products for use in onshore applications, including high-temperature/high-pressure drilling and service applications and Flex Steel.
Strong revenue in first half-year results
In a first half-year result announced in August 2009, Wellstream’s revenue increased by 12% to £202.7m, which compares with £181.4m for the same period in 2008. Offshore revenue grew by 10% to £194.9m, which compares with £177.7m in the first half of 2008. Wellstream’s growth was generated by a doubling of installation revenue and the additional capacity available in Brazil. Average revenue per normalised kilometre of offshore pipe has decreased by 14% since 2008. However, onshore revenue was £4.1m higher than in the same period last year, driven largely by the demand for 6 inch high pressure flowlines, particularly in South America.
Increased production
Wellstream’s production capacity increased by 40% in the first half of 2009, attributable to the Newcastle plant’s 300 normalised km per annum increase and the Brazilian Niteroi increase of 270 normalised km per annum. Record production was also achieved during the period in spite of challenges in Brazil caused by the expansion activities, and the unforeseen disruption to the supply chain in Newcastle. The group also completed the manufacturing phase for the Seastream contract in Australia along with the delivery of risers and flowlines on the Petrobras' TUPI EWT project, setting a water depth record for flexible flowlines at 2,140m. Wellstream also sold its onshore Flex Steel business to Prime Natural Resources Inc. for $30m in cash, leaving the company to focus on its core offshore business which makes superior margins.
Technical outlook
On daily chart, Wellstream is making a channel between 445.0p and 600.0p with a positive slope and 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 is forming. 14 day RSI (relative strength index) is above 50 showing strength in trend. 14 day positive DMI (directional moving index) has cross above 14 day negative and ADX (Average directional index) is near 20, indicating consolidation. Stock is also above 20 day and 50 day EMA which supports strength in trend. Stock has resistance near 600.0p and support near 500.0p.
Trading strategy
The stock can be bought around 520.0p with a profit target 579.95p and stop loss of 493.9p (Hedge position: short position in spread betting with £2.4 bet per point).
| Sector |
|
Last closing price
(07/09/2009) (p) |
325.5 |
| 52 week High/Low (p) |
325.5/156.25 |
| Market Cap (£bn) |
2.78 |
Sector weight age by
Market Cap (%) |
8.8 |
| Average Volume (mn) |
4.76 |
| P/E ratio (TTM) |
- |
Industry P/E
ration (TTM) |
0.34 |
TTM: Trailing Twelve Month
Daily chart (HOME.L)
Business background and investment rationale
Home Retail Group PLC sells home and general merchandise. It 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 an interim management statement announced in June 2009, total sales at Argos grew by 0.9% to £937m while total sales at Homebase grew by 5% to £465m. Net new space contributed 3.7% at Argos and 2% at Homebase. Home Retail opened five new Argos stores and three Homebase stores, taking the portfolio to 735 and 348 outlets respectively. Like-for-like sales at Argos declined by 2.8%, while Homebase enjoyed increases of 3.8% during the quarter. Argos reported continuing good growth in consumer electronics and toy sales, while furniture and home wares markets remained challenging. Group gross margins in Argos were down by 75 basis points, while at Homebase they were down 250 basis points driven mainly by the sales mix. Home Retail continues to expect the impact of adverse currency movements on the gross margin rate to increase through the course of the year. 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.
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 advantageous sourcing operations and investment in multi-channel operations. These elements 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. Home Retail will invest capital selectively so its businesses emerge from the consumer downturn in a strong position.
Technical outlook
On daily chart, Home Retail is making a positive slope with a higher low from the November 2008 low, and is trading near the 52 week high which is an encouraging sign. MACD is positive and 12 day EMA has cross above 26 day EMA, indicating an uptrend forming. 14 day RSI is near 70 showing strength in trend. 14 day positive DMI is above 14 day negative while ADX is near 30 indicating uptrend. Stock is also above 20 day and 50 day EMA which supports strength in trend. Stock has strong support near 300.0p and resistance near 370.0p.
Trading strategy
The stock can be bought around 321.0p with a profit target 358.0p and stop loss of 304.9p (Hedge position: short position in spread betting with £3.89 bet per point).
Logica
Logica has broken the key support level of 117 and is trading above the recommend price of 117.0p after making a low of 110.3p. MACD is positive and 12 day EMA is below 26 day EMA, indicating consolidation. 14 day RSI has cross again above the overbought zone of 70 indicating a new buy signal on the stock. Positive DMI is way above negative DMI, which indicates a strong positive trend confirmed by ADX near 60. Looking at current strength in the trend, profit should be booked at 114.0p.
Aveva Group PLC
On daily chart, Aveva is near to the break channel upside between 800.0p and 870.0p with a higher low, which is a discouraging sign for sell off. MACD is still positive but 12 day EMA is below 26 day EMA, indicating uptrend. 14 day RSI is above 60 supporting uptrend. 14 day ADX is near 30 supporting strong upward movement recently. Looking at recent strength in uptrend profit should be booked at 830.0p.
Babcock International Group PLC
Babcock’s has broken channel upside between 502.0p and 457.0p, making a higher low. This indicates 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, while positive DMI is crossing above negative DMI, which indicates a positive trend is forming. Stock should be hold with the same profit target.
Associated British food PLC
On daily chart, ABF hit stop loss in a whipsaw making a new 52 week high of 859.5p and is trading below stop loss of 850. MACD is positive and 12 day EMA is above 26 day EMA indicating uptrend. 14 day RSI is above 60 showing uptrend. All positions should be closed for the stock.
WS Atkins PLC
On daily chart, Atkins has made round bottom between 631.0p and 511.0p with higher low and is trading in an upside breakout range of 631.0p, which indicates uptrend, so entry could be made only at 624.5p. 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 is above 50 showing strength in trend. 14 day positive DMI 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. Stock should be new profit target of 696.5 and stop loss of 593.3.
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.
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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