| Sector |
Software & Computer services |
Last closing price
(09/11/2009) (p) |
916 |
| 52 week High/Low (p) |
1083/449.5 |
| Market Cap (£mn) |
617.5 |
Sector weight age by
Market Cap (%) |
3.01 |
| Average Volume (k) |
289.4 |
| P/E ratio (TTM) |
14.69 |
Industry P/E
ration (TTM) |
5.76 |
TTM: Trailing Twelve Month
Daily chart (AVV.L)
Business background and investment rationale
Aveva Group PLC develops computer software and services for engineering and related solutions. The company provides engineering information technology software to the plant, power and marine industries.
Growth in emerging markets
In a final year result announced in May 2009, Aveva saw strong trading in its principal markets of Oil & Gas and Power & Marine across all regions. Total revenue increased by 29% to £164m and initial licence fees were £57.7m, which compared to £52.9m in 2008. Asia Pacific continues to be the main driver in these areas, with initial fees of £36.8m, £3m higher than 2008, mainly thanks to the success of the marine business in China and Korea. Central, Eastern and Southern Europe also generated significant initial fees of £16.5m, which compares with £13.1m in 2007/08. Aveva is expecting oil & gas markets to remain relatively robust, particularly in developing countries such as Brazil, where large complex projects are stimulating demand, delivering new customer wins and generating growth in the existing customer base. The group should also benefit from exchange rate movements in the first half.
Restructuring and acquisition
In July 2009 Aveva completed its restructuring program by combining its Central, Eastern, Southern and Western Europe sales region with the Middle East and Africa to form one Europe, Middle East and Africa region. The firm also reduced headcount across the business by approximately 10%. These initiatives will result in annualised cost savings of around £5m, while the exceptional implementation costs of around £3.5m will be incurred in the first half of 2009/10. To increase its presence in Asia Pacific, Aveva acquired iDesign Office Pty Limited, a small Australian software company specialising in instrumentation software, for a total consideration of £1.7m.
Technical outlook
On daily chart, Aveva rebounded from its 52 week high of 1083.0p and is consolidating at support level of 900.0p. MACD (moving average convergence/ divergence) is negative, and 12 day EMA (exponential moving average) is below 26 day EMA, indicating the recent fall in prices. However, the difference is declining which supports the view that prices are consolidating. 14 day RSI (relative strength index) is below 50, but is above from the oversold level. Stock has also crossed above 50 day EMA which is quite encouraging. 14 day positive DMI (directional moving index) is above 14 day negative DMI which indicates stock is forming an uptrend. Stock has resistance at 976.0p and support at 863.0p level.
Trading strategy
The stock can be bought around 900.0p with a profit target 1003.77p and stop loss of 854.8p (Hedge position: Long position in spread betting with £1.38 bet per point).
| Sector |
Support Services |
Last closing price
(09/11/2009) (p) |
534.5 |
| 52 week High/Low (p) |
546.5/341.5 |
| Market Cap (£bn) |
2.58 |
Sector weight age by
Market Cap (%) |
4.11 |
| Average Volume (mn) |
1.67 |
| P/E ratio (TTM) |
22.48 |
Industry P/E
ration (TTM) |
3.53 |
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. Last week Serco signed a contract valued at £160m over 15 ½ years with the London Borough of Bexley to provide a full range of environmental services, including refuse and recycling collection, commercial waste and street cleaning. 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 trust’s 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 predicts 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 is on the verge of completing the ‘V’ pattern and recently crossed above 20 day EMA, which is quite encouraging. MACD is positive, and 12 day EMA has just crossed above 26 day EMA, indicating a bullish signal for the stock. 14 day RSI is above 60 showing strength in trend. 14 day positive DMI is above 14 day negative DMI which indicates uptrend is intact. Stock has strong support near 500.0p and immediate resistance near 546.0p. If the Stock moves above the 550.0p level, a higher move can be expected.
Trading strategy
The stock can be bought around 525.0p with a profit target 585.5 p and stop loss of 498.6p (Hedge position: Short position in spread betting with £2.37 bet per point).
Imperial Tobacco Group PLC
Imperial hit the reduced profit target of 1820.0p last week which indicates the stock has rebounded again for a positive trend. MACD is positive and 12 day EMA is still below 26 day EMA but the declining difference is quite encouraging. 14 day RSI is also 50 showing some strength in trend. Stock has cross above 20 day and 50 day EMA supporting the uptrend. All positions should be closed for the stock.
GlaxoSmithKline PLC
On the daily chart, GlaxoSmithKline has fallen to 1200.0p, but stock held up at this level which indicates it has formed a bottom at this level. Stock crossed above 50 day EMA which indicates it will rise further. MACD is negative and 12 day EMA below 26 day EMA indicating a recent price fall.14 day RSI is below 50 indicating a weakness in trend.14 day negative DMI is above 14 day positive DMI and ADX is near 20 indicating a consolidation. Looking at the small uptrend, stock should be a hold with same profit target of 1270.0p.
Autonomy Corporation PLC
Autonomy has moved above the positive trendline joining October 2008’s low of 789.5p, indicating stock is making a positive trend after declining to 1278.0p. It is near to its profit target of 1270.0p. Momentum oscillator MACD is negative and 12 day EMA has crossed above 26 day EMA indicating a positive trend.14 day RSI is still below 50 indicating a weak trend. Looking at the positive trend, stock should be a hold with a new reduced profit target of 1370.0p.
Fidessa Group PLC
On the daily chart, Fidessa hit the stop loss of 1270.4p in a whipsaw and stock is trading near the entry price of 1210.0p. Stock is near to breakout in the downside range if it can’t hold 1200.0p. MACD is positive but 12 day EMA is below 26 day EMA, indicating a downtrend. 14 day RSI is above 50 showing some strength in trend. 14 day positive DMI is above 14 day negative indicating a positive trend is forming in the stock. All position should be closed for the stock.
Babcock International Group PLC
On the daily chart, Babcock has broken out a channel between 560.0p and 600.0p, making a new 52 week high of 643.5.0p today. MACD is positive and 12 day EMA is above 26 day EMA indicating a positive trend. 14 day RSI is above 60 and near to a overbought level, indicating there is further potential to move upside. Positive DMI is above negative DMI, which indicates a positive trend and ADX is near 30 indicating strong upside. Stock has to cross above 650.0p for a higher move.
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.
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 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.
