| Sector |
Aerospace & Defense |
Last closing price
(14/09/2009) (p) |
2296 |
| 52 week High/Low (p) |
2365/1527 |
| Market Cap (£mn) |
810.3 |
Sector weight age by
Market Cap (%) |
2.79 |
| Average Volume (k) |
126.22 |
| P/E ratio (TTM) |
16.57 |
Industry P/E
ration (TTM) |
9.33 |
TTM: Trailing Twelve Month
Daily chart (CHG.L)
Business background and investment rationale
Chemring Group PLC designs, manufactures and sells energetic material products and decoy countermeasures. It provides solutions for specific customer requirements in the defence, security and safety markets. Its two operating divisions comprise of Energetics and Countermeasures.
Strong growth in the first half of 2009
In a half-year result announced in June 2009, Chemring’s revenue reached £233.5m, a rise of 55% from 2008’s £150.2m. Underlying profits before tax hit £39.5m, which represented an increase of 67% from last year’s £23.6m. Underlying earnings per share increased by 56% from 52p to 81p. The Energetics division performed well: its first half revenue climbed 86%, operating profit more than doubled to £28.8m and since June last year, its order book was up by 21% reaching £353m. The Energetics division’s operating margin was 20%, a figure significantly higher than the 16% achieved in 2008 which reflects the strong first half performance from Simmel Difesa in Italy, as well as substantial margin improvements in Chemring Defence and Chemring Marine operations. The Countermeasures division also performed well with revenue increasing by 22% from £70.9m to £86.2m, while the operating profit rose by 25% from £19m in 2008 to £23.7m.
Growth from mergers and acquisitions
In December 2008, Chemring acquired Niitek – a leading supplier of robot and vehicle-marked mine detection systems – for an initial cash consideration of $30m. In July 2009 Niitek was awarded a $75m contract from the US Army for the supply and support of 50 Husky Mine Detection Systems. This followed the $50m contract from the US Army awarded in the first half of 2009. During this same period, Chemring merged Martin Electronics, Titan Dynamic Systems and Kilgore Defense to form the new US business unit known as Chemring Ordnance. The company reported a 22% increase in revenues from businesses acquired in the last two years.
Technical outlook
On daily chart, Chemring has broken out in a positive direction from a channel of 2000.0p and 2200.0p, and is making a positive slope from the November 2008 low which is an encouraging sign. MACD (moving average convergence/divergence) is positive and 12 day EMA (exponential moving average) is above 26 day EMA, indicating a strong rally. 14 day RSI (relative strength index) is above 70 showing overbought and needs some consolidation above 2200.0p. 14 day positive DMI (directional moving index) is above 14 day negative, while DMI is near 31 indicating strong uptrend. Stock is also above 20 day and 50 day EMA which supports strength in trend. Stock has strong support near 2000.0p and resistance near 2500.0p.
Trading strategy
The stock can be bought around 2260.0p with a profit target 2520p and stop loss of 2147.0p (Hedge position: Short position in spread betting with £0.55 bet per point).
| Sector |
|
Last closing price
(14/09/2009) (p) |
1770 |
| 52 week High/Low (p) |
1983/1368 |
| Market Cap (£bn) |
17.93 |
Sector weight age by
Market Cap (%) |
31.64 |
| Average Volume (mn) |
2.5 |
| P/E ratio (TTM) |
274.17 |
Industry P/E
ration (TTM) |
1.54 |
TTM: Trailing Twelve Month
Daily chart (IMT.L)
Business background and investment rationale
Imperial Tobacco Group PLC is an international tobacco company which manufactures, markets, distributes and sells a range of cigarettes, tobaccos, cigars, rolling papers and tubes. The company operates in two business segments: tobacco and logistics.
Versatility in balanced portfolio
In an interim management statement announced in July 2009, group revenue for the third quarter grew strongly. Growth was driven by an enlarged global footprint and increases in the value cigarette and fine cut tobacco brands within mature markets. Imperial also continued to develop mainstream and premium cigarette brands in emerging markets. A weaker economy and currency in the UK saw Imperial’s duty on fine cut tobacco volumes grow by 10% for the 12 months to June 2009. Golden Virginia Yellow, launched in March 2009 in the economy sector, has grown to a June spot share of over 1%, while Imperial’s other value brand, Gold Leaf, is benefiting from downtrading within the segment. Also in the economy sector JPS Silver, which launched in November 2008, continues to make excellent progress achieving a June spot share of 3% and along with Windsor Blue, continues to grow its share in the economy. In the Asia Pacific region, Imperial grew its market share in New Zealand, Cambodia and Laos.
Strong financial position
The group remains confident in its ability to successfully access the debt capital markets and it continues to review its options on an ongoing basis. Despite the challenges of the wider operating environment, Imperial’s Altadis integration is progressing well with cash conversion expected to exceed 100%. In June 2009 Imperial placed a three-year euro bond for €1.25bn and a ten-year sterling bond for £500m.
Technical outlook
Imperial made a higher low in April 2009 from its 52 week low of 1368.0p with a positive slope which is an encouraging sign. Trend for the stock looks positive as MACD is positive and 12 day EMA is above 26 day EMA, which indicate uptrend. 14 day RSI is above 60 showing strength in trend. Recently 50 day EMA has cross above 200 day EMA and is supporting an uptrend. 14 day positive DMI is above 14 day negative DMI and DMI is near 20 indicating constant rise in the stock. If the stock breaks above 1800.0p a higher move to 2000.0p can be expected, with support at 1700.0p and resistance at 1900.0p levels.
Trading strategy
The stock can be bought around 1745.0p with a profit target 1946p and stop loss of 1644.0p (Hedge position: Short position in spread betting with £0.68 bet per point).
Logica
Logica hit stop loss of 122.86p and is trading at 127.0p which is higher than its stop loss after breaking a resistance level near 117.0p. MACD is positive and 12 day EMA is above 26 day EMA, indicating uptrend. 14 day RSI is above the overbought zone of 70 also indicating uptrend. All positions should be closed for the stock.
Aveva Group PLC
On daily chart, Aveva hit stop loss of 871.6 and is very near to break above 900.0p. MACD is positive but 12 day EMA is above 26 day EMA, indicating uptrend. 14 day RSI is above 60 supporting uptrend. 14 day ADX is near 30 supporting strong upward movement recently. All positions should be closed for the stock.
Babcock International Group PLC
Babcock’s has broken channel upside between 502.0p and 457.0p, and is making a higher low hitting the profit target of 546.4p. 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. 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 a higher low and is trading in an upside breakout range of 631.0p, which indicates uptrend. 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 which supports strength in trend. Stock should be a hold with the same profit target as last week recommended.
Well stream holdings PLC
Wellstream hit profit target of 579.95p after breakout from the channel of 445.0p and 600.0p with a positive slope, but entry could be made only at 527.5p. MACD is positive, and 12 day EMA is above 26 day EMA, indicating an uptrend. 14 day RSI is above 60 showing strength in trend. 14 day positive DMI is above 14 day negative and ADX is near 40, indicating strong uptrend. All position should be closed for the stock
Home retail group PLC
On daily chart, Home Retail hit stop loss of 304.9p after their second quarter result. MACD is positive and 12 day EMA has cross below 26 day EMA, indicating downtrend forming. 14 day RSI is near 40 showing weakness in trend. 14 day negative DMI is above 14 day positive while ADX is near 20 indicating downtrend. All position should be closed for the stock.
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.
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.
