| Sector |
Oil Equipment services & Distributions |
Last closing price
(30/11/2009) (p) |
531 |
| 52 week High/Low (p) |
702/312 |
| Market Cap (£mn) |
518.69 |
Sector weight age by
Market Cap (%) |
5.23 |
| Average Volume (mn) |
1.07 |
| P/E ratio (TTM) |
12.64 |
Industry P/E
ration (TTM) |
13.43 |
TTM: Trailing Twelve Month
Daily chart (WSM.L)
Business background and investment rationale
Wellstream Holdings PLC provides piping equipment to the energy production industry. The company’s portfolio includes offshore products, such as risers and flow lines for deep and ultra-deepwater environments; products for use in onshore applications, including high-temperature/high-pressure drilling.
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 flow lines, particularly in South America. In an interim management statement released this month, the group expects second half-year earnings to be ahead of the first half. The company’s backlog of orders stands at £170m, with a key contract awarded by Petrobas in Brazil.
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. The firm also achieved record production during the period in spite of challenges in Brazil which were caused by the expansion activities and 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 flow lines on the Petrobras' TUPI EWT project, setting a water depth record for flexible flow lines 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 the daily chart, Wellstream is making a channel between 475.0p and 600.0p and recently crossed above the downtrend line, indicating an uptrend is forming. MACD (moving average convergence/divergence) is negative, but 12 day EMA (exponential moving average) has crossed above 26 day EMA, indicating an uptrend is forming. 14 day RSI (relative strength index) is near 50 showing strength in trend. 14 day positive DMI (directional moving index) is still below 14 day negative and ADX (average directional index) is near 20, indicating consolidation. Stock has also crossed above 20 day which supports strength in trend. Stock has resistance near 600.0p and support near 470.0p.
Trading strategy
The stock can be bought around 520.0p with a profit target 575.49p and stop loss of 490.13p (Hedge position: short position in spread betting with £3.37 bet per point).
| Sector |
Tobacco |
Last closing price
(30/11/2009) (p) |
1768 |
| 52 week High/Low (p) |
1983/1412 |
| Market Cap (£bn) |
18.05 |
Sector weight age by
Market Cap (%) |
32.98 |
| Average Volume (mn) |
2.96 |
| P/E ratio (TTM) |
27.31 |
Industry P/E
ration (TTM) |
1.75 |
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 a preliminary final result announced this month, Imperial’s second half net revenues in tobacco showed a 5% and 7% growth in adjusted profit from operations at constant currency and before synergy benefits. Growth was driven by an enlarged global footprint and increases in the value of cigarette and fine cut tobacco brands within mature markets. Imperial also continued to develop mainstream and premium cigarette brands in emerging markets.
The volume of Imperial’s key international cigarette brands, Davidoff, Gauloises Blondes and JPS, grew by 12%, 1% and 11 % respectively, supported by good gains from regional and local brands. The group has continued to increase its share of the economy segment, reaching 31% from 29% in 2008, as a result of growth in JPS Silver. Launched in November 2008, JPS Silver has delivered excellent results with a market share of 3.3% in September 2009.
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 swift and efficient integration of Altadis has accelerated the timing of cumulative synergies enabling group to deliver €190m. This is €10m ahead of expectations and the business remains firmly on track to achieve overall synergy targets. Imperial also reduced its working capital by £1bn last year, enhancing its cash generation and enabling the company to reduce its adjusted debt by £2bn before the impact of foreign exchange. In June 2009 Imperial placed a three-year euro bond for €1.25bn and a 10-year sterling bond for £500m and has no refinancing requirements until July 2012.
Technical outlook
Imperial is trading below the positive trend line joining a 52 week low of 1412.0p, but it is still trading above 200 day EMA which is quite encouraging. The short-term trend for the stock looks negative as MACD is negative and 12 day EMA is below 26 day EMA, which indicate downtrend. 14 day RSI is above 50 showing weakness in trend. 14 day negative DMI is above 14 day positive DMI and ADX is near 20 indicating recent fall in share price and consolidation near 1800.0p. 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 1740.0p with a profit target 1940.0p and stop loss of 1662.7p (Hedge position: Short position in spread betting with £0.71 bet per point).
Autonomy Corporation PLC
Autonomy stayed in a positive trend but hit a reduced profit target of 1410.0p in a choppy market. Momentum oscillator MACD is negative and 12 day EMA is still above 26 day EMA indicating a positive trend.14 day RSI is below 50 indicating some weakness in a positive direction. All positions should be closed for the stock.
Babcock International Group PLC
On the daily chart, Babcock is consolidating between 630.0p and 640.0p, following last week’s consolidation between 620.0p and 630.0p. MACD is still positive and 12 day EMA has crossed below 26 day EMA indicating some weakness and consolidation. 14 day RSI is above 50 indicating strength in trend. Positive DMI is above negative DMI which indicates a positive trend, and ADX is near 20 indicating consolidation. Looking at the lack of movement, stock should be a hold with a reduced profit target of 635.0p.
Serco Group PLC
On the daily chart, Serco is in negative trend after it fell below 520.0p. MACD is still positive and 12 day EMA is below 26 day EMA, indicating some consolidation. 14 day RSI is also below 50 showing a weakness in trend. 14 day positive DMI is above 14 day negative DMI and ADX is near 20 indicating consolidation. Looking at the lack of movement, stock should be a hold with a reduced profit target of 530.0p.
Kesa Electricals PLC
On the daily chart, stock made a new 52 week high of 162.0p last week, but couldn’t hold the uptrend after making a complete ‘V’ pattern between 128.0p and 161.0p. MACD is positive and 12 day EMA is above 26 day EMA, indicating uptrend. 14 day RSI is above 50 indicating strength in trend, but stock has to stay above 150.0p for a clear upside trend. Positive DMI is above negative DMI, which indicates a positive trend. Looking at negative trend in the market, stock should be a hold with reduced profit target of 156.0p.
Antofagasta PLC
On the daily chart, Antofagasta still is on the verge of completing a ‘V’ pattern between 879.0p and 956.0p making a positive trend, and again has crossed above 20 day EMA which is quite encouraging. MACD is positive and 12 day EMA has crossed below 26 day EMA indicating recent weakness in positive trend. 14 day RSI is above 50 indicating strength in trend and the potential to move upside. Negative DMI is above positive DMI, which indicates a recent fall. Stock should be a hold with reduced profit target of 950.0p.
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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
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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.
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.
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