| Sector |
General retailers |
Last closing price
(21/09/2009) (p) |
144 |
| 52 week High/Low (p) |
154.5/59 |
| Market Cap (£mn) |
757.26 |
Sector weight age by
Market Cap (%) |
2.3 |
| Average Volume (mn) |
2.85 |
| P/E ratio (TTM) |
- |
Industry P/E
ration (TTM) |
0.21 |
TTM: Trailing Twelve Month
Daily chart (KESA.L)
Business background and investment rationale
Kesa Electricals PLC is a holding company with independent subsidiaries operating through 690 stores in nine European countries. The company’s principal activity is retail of electrical goods and furniture, and outlets include Comet and Darty.
Fewer declines in sales
In an interim management statement announced last week, total group revenue increased by 5.8% in sterling and declined 0.2% in local currency, a fall of 3.9% on a like-for-like basis for the three months to 31 July 2009. Kesa’s web generated sales increased by 28% and the company also opened two new stores in Italy and one in Turkey. In France trading conditions remained challenging, causing Darty's revenue to fall by 0.3% in local currency. Excluding Darty Box, revenue was down 1.5%, and 3.7% on a like-for-like basis. Gross margins remained stable and, during the period, one new store and five additional kitchen outlets were opened.
Restructuring business
Given the weak trading conditions, Comet in the UK has taken action to improve its operational efficiency. These include the consolidation of distribution and service centres plus a reduction in head office employees. An exceptional charge of approximately £9m will be taken in the year just ended, with annualised cost savings expected to be approximately £14m. Menaje del Hogar faced extremely difficult market conditions in Spain, but the like-for-like sales decline has started to ease and the restructuring programme is well advanced with the closure of 10 stores during the period. These actions are expected to generate annualised cost savings of approximately €11m and contribute to a reduction in the retail losses for the coming financial year. In July 2009 Kesa sold Darty Switzerland to Swiss electrical retailing chain FUST for CHF 20m (£11.4m).
Technical outlook
On the daily chart stock is forming a channel between 140.0p and 150.0p after rising nearly 44% from May 2009. Trend for the stock is in a consolidation phase around 150.0p and stock has to hold above 135.0p for a higher move with immediate resistance near 150.0p. MACD (moving average convergence/ divergence) is positive and 12 day EMA (exponential moving average) is below 26 day EMA, indicating consolidation. 14 day RSI (relative strength index) is also above 50 indicating strength in trend, but stock has to move to 150.0p for a clear upside trend. Positive DMI (directional moving index) has cross above negative DMI, which indicates a positive trend is forming. Stock has support between 135.0p and resistance at 173.0p.
Trading strategy
The stock can be bought around 141.0p with a profit target 157.25p and stop loss of 133.93p (Hedge position: Short position in spread betting with £ 8.86bet per point).
| Sector |
Support services |
Last closing price
(21/09/2009) (p) |
568.5 |
| 52 week High/Low (p) |
619.5/306 |
| Market Cap (£bn) |
1.3 |
Sector weight age by
Market Cap (%) |
2.06 |
| Average Volume (mn) |
1.37 |
| P/E ratio (TTM) |
15.28 |
Industry P/E
ration (TTM) |
2.36 |
TTM: Trailing Twelve Month
Daily chart (IMT.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, with 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 less than 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% benefiting from the integration of a recently purchased civil nuclear business. To strengthen its nuclear business further, last week Babcock acquired the United Kingdom Atomic Energy Authority for a cash consideration of £50m. The acquired enterprise has over 50 years' experience in nuclear site management, operations and decommissioning and established advisory roles with a number of government organisations in both the UK and overseas.
Technical outlook
On the daily chart, Babcock has broken out a channel between 502.0p and 453.0p. It has made a strong positive move from the last recommendation and although the trend looks overbought, if the stock holds around 550.0p, a higher move can be expected. MACD is positive and 12 day EMA is above 26 day EMA indicating a positive trend. 14 day RSI is above 70 indicating it is overbought and needs consolidation around 550.0p. Positive DMI is above negative DMI, which indicates a positive trend. Stock has support between 500.0p and resistance at 611.0p.
Trading strategy
The stock can be sold around 550.0p with a profit target 613.4p and stop loss of 522.4p (Hedge position: long position in spread betting with £2.27 bet per point).
WS Atkins PLC
On the daily chart, Atkins has not moved too much from last week and is trading above the upside breakout range of 631.0p. 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.
Chemring Group PLC
On the daily chart, Chemring has made a strong move towards 2500.0p but couldn’t break above it, making a high of 2485.0p during the week. MACD is positive and 12 day EMA is above 26 day EMA, indicating a strong rally. 14 day RSI is above 70 showing its overbought and needs some consolidation above 2400.0p for a higher move. 14 day positive DMI is above 14 day negative DMI, while ADX is near 41 indicating strong uptrend. Stock should be a hold with the same profit target.
Imperial Tobacco Group PLC
Imperial did not move in any direction last week, but uptrend is still intact for the stock. 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 50 showing strength in trend. Recently 50 day EMA has crossed 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. Stock should be a hold with the same profit target.
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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.
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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.
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