| Sector |
Software & Computer services |
Last closing price
(05/10/2009) (p) |
122.8 |
| 52 week High/Low (p) |
136.8/57.5 |
| Market Cap (£bn) |
1.95 |
Sector weight age by
Market Cap (%) |
9.52 |
| Average Volume (mn) |
10.11 |
| P/E ratio (TTM) |
34.27 |
Industry P/E
ration (TTM) |
9.5 |
TTM: Trailing Twelve Month
Daily chart (LOG.L)
Business background and investment rationale
Logica PLC is an information technology (IT) and business services company providing: business consulting, systems integration, IT and outsourcing services. They have a diverse client base including the public sector, telecoms, financial services, energy and utilities, distribution and transport.
Outsourcing opportunities in economic downturn
Logica foresees an increase in outsourcing business opportunities in the fourth quarter as its customers become freed from some of the constraints which marked the first half of 2009. In the first half of this year Logica won major contracts in outsourcing including: a seven year £76.5m contract to design, build and operate the UK's Police National Database; a contract with TeliaSonera to provide managed workspace services to 34,000 IT users; and HR and Business Process Outsourcing (BPO) contracts from Channel 4 and Ford. Logica’s significant progress in building this area means the outsourcing business now represents 36% of group revenue - exceeding the 35% target set in 2008 - and maintains its margin in line with last year. However, following a significant fall off in demand for consulting framework contracts and systems integration projects, Logica is looking to make cost reductions.
Cost cutting measures
In light of deteriorating market conditions Logica announced its intention to accelerate cost savings and slow investments in November 2008 and February 2009. The group set a target of £75m for cost savings in 2009 and £110m for 2010, with a £30m investment in sales and marketing. Logica’s overall one-off cost remains at £145m, of which £61m is expected to be incurred in 2009. Onshore and offshore recruitment has slowed and the company has also reduced the number of employees where demand is weakest. In addition, Logica achieved considerable savings through the execution of companywide procurement activities and processes in the first half of 2009.
Technical outlook
On the daily chart, Logica has fallen from its recent 52 week high and is moving in a negative direction. MACD (moving average convergence /divergence) is positive, but 12 day EMA (exponential moving average) is crossing below 26 day EMA, indicating that a negative trend is forming. 14 day RSI (relative strength index) is below 50 indicating weak strength. Trends in both indicators are also negative indicating that the stock will fall further. Positive DMI (directional moving index) is above negative DMI but falling, which indicates a negative trend forming confirmed by ADX near 20. Stock has resistance near 110.0p and support near 136.0p.
Trading strategy
The stock can be sold around 126.0p with a profit target 111.47p and stop loss of 132.31p (Hedge position: Long position in spread betting with £9.91 bet per point).
| Sector |
Support services |
Last closing price
(05/10/2009) (p) |
489.1 |
| 52 week High/Low (p) |
517/317 |
| Market Cap (£bn) |
2.4 |
Sector weight age by
Market Cap (%) |
3.8 |
| Average Volume (mn) |
3.29 |
| P/E ratio (TTM) |
20.97 |
Industry P/E
ration (TTM) |
2.11 |
TTM: Trailing Twelve Month
Daily chart (SRP.L)
Business background and investment rationale
Serco Group PLC is an international service company operating in four business segments: Civil Government, Transport, Defence and Science. The company’s private sector business is split across these segments and provides information technology (IT) services, fleet maintenance, facilities management and other services to major companies.
New contract wins
Serco maintained win rates of more than 90% when re-tendering for contracts and secured one in two new bids. Signed contracts were valued at £2.1bn and the firm was the preferred bidder for £1.4bn of contracts during 2009. In September 2009 Serco signed three flexible contracts valued at up to £500m with the UK’s Department for Work and Pensions. The deal sees Serco appointed as prime contractor to deliver the government's Flexible New Deal initiative which supports jobseekers in returning to and remaining in work. In January 2009 Serco entered the pathology market by forming a partnership, GSTS Pathology LLP, with the Guys’ & St Thomas’ NHS Foundation Trust. Serco will improve the trusts’ pathology services under a new contract valued at £250m for 10 years, targeting the pathology market in the UK and overseas.
High visibility of future earnings
As at June 2009, Serco had an order book of £16.7bn and an opportunity pipeline of £27bn. The company has 99% visibility in planned revenue for 2009, 86% for 2010 and 72% for 2011. For the first half of 2009, excluding SI International and currency, Serco delivered 10.8% revenue growth and a 20 basis points increase in adjusted operating profit margin. Serco projects that revenue will increase to £5bn, while adjusted operating profit margins will climb by approximately 6.3% by the end of 2012. The increases exclude material acquisitions, disposals and currency effects.
Technical outlook
On the daily chart, Serco rebounded from 52 week high of 517.0p and very near to support level of 479.0p. MACD is positive, and 12 day EMA has just crossed below 26 day EMA, indicating recent pullback. 14 day RSI is above 50 showing strength in trend. 14 day positive DMI is above 14 day negative DMI which indicates uptrend is intact. Stock is below 20 day EMA, but above 50 day EMA which supports long term uptrend is intact. Stock has strong support near 450.0p and resistance near 512.0p.
Trading strategy
The stock can be bought around 480.0p with a profit target 535.4 p and stop loss of 455.93p (Hedge position: Short position in spread betting with £2.6 bet per point).
WS Atkins PLC
On the daily chart, WS Atkins is making a negative trend and trading below the breakout range of 631.0p. MACD is negative and 12 day EMA has cross below 26 day EMA indicating weakness in uptrend. 14 day RSI is below 50 showing weakness in trend. 14 day positive DMI is above 14 day negative but falling and ADX is near 20, both of which indicate a negative trend is forming. Stock should be a hold with reduced profit target of 640.0p.
Chemring Group PLC
On the daily chart, Chemring has hit the profit target of 2520.0p after consolidating around 2400.0p. MACD is positive and 12 day EMA is above 26 day EMA after a recent fall which indicates the trend is positive. 14 day RSI has just crossed above 70 indicating a higher move. 14 day positive DMI is above 14 day negative DMI, while ADX is near 41 indicating strong uptrend. All positions should be closed for the stock.
Imperial Tobacco Group PLC
Imperial’s move above 1800.0p indicates trend for the stock is positive as MACD is positive and 12 day EMA is above 26 day EMA. 14 day RSI is above 60 showing strength in trend. 50 day EMA is still above 200 day EMA supporting an uptrend. 14 day positive DMI is above 14 day negative DMI and ADX is near 20 indicating constant rise in the stock. Stock should be a hold with a reduced profit target of 1860.0p.
Kesa Electrical PLC
On the daily chart, stock is consolidating 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. MACD is positive and 12 day EMA is below 26 day EMA, indicating weakness in uptrend. 14 day RSI is also above 50 indicating strength in trend. Negative DMI has cross above positive DMI, which indicates a negative trend is forming. Stock should be a hold with a reduced profit target of 150.0p.
Babcock International group PLC
On the daily chart, Babcock is making a negative trend after falling from its high of 598.0p, but is trading above the key support level of 550.0p. MACD is positive and 12 day EMA has cross below 26 day EMA indicating a negative trend forming. 14 day RSI has also crossed below 70 and is at the overbought level, but is still above 50 which indicates strength in trend and needs consolidation above 550.0p. Positive DMI is above negative DMI, which indicates a positive trend. Stock should be a hold with a new reduced profit target of 590.0p.
Home Retail Group PLC
On the daily chart, Home Retail is still trading below the positive slope from the November 2008’s low and is bottoming around 270.0p, indicating a sell signal on the stock which is supported by stock trading below 20 day and 50 day EMA. MACD is negative and 12 day EMA has crossed below 26 day EMA, indicating a downtrend. 14 day RSI is below 40 supporting weakness. 14 day negative DMI is above 14 day positive while ADX is near 25 indicating downtrend. Stock should be a hold with a reduced profit target of 268.0p.
GlaxoSmithKline PLC
On the daily chart, the stock has rebounded from the recent high of 1250.0p and is consolidating around 1200.0p. MACD is positive and 12 day EMA has just crossed below 26 day EMA indicating a recent price fall.14 day RSI is near 50 indicating strength in trend.14 day positive DMI is above 14 day negative DMI and ADX is near 20 indicating consolidation. 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.
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 July to 30th September 2009:
| |
% Distribution of recommendations |
No of recommendation |
| Buy |
81% |
21 |
| Hold |
0 |
0 |
| Sell |
19% |
5 |
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.
