| Sector |
Tobacco |
Last closing price
(05/07/2010) (p) |
2125.5 |
| 52 week High/Low (p) |
2335.0/1637.0 |
| Market Cap (£bn) |
42.31 |
Sector weight age by
Market Cap (%) |
69.16 |
| Average Volume (mn) |
3.5 |
| P/E ratio (TTM) |
15.55 |
Sector P/E
ration (TTM) |
7.41 |
TTM: Trailing Twelve Month
Daily chart (BATS.L)
Business background and investment rationale
British American Tobacco PLC (BAT) is an international company which sells cigarettes, cigars, leaf and other tobacco products. It has over 300 brands in its portfolio, which are sold in more than 180 markets. BATS has four Global Drive Brands (GDB): Dunhill, Kent, Lucky Strike and Pall Mall.
Strong growth in emerging markets
In an interim management statement announced in April 2010, the GDB delivered good performance achieving an overall increase in volume of 6%, in addition to share growth in a number of key markets. Dunhill was up 24%, helped by the migration of Carlton to Dunhill in Brazil, while Lucky Strike and Pall Mall grew by 8% and 10% respectively. Kent volumes were 12% lower following industry volume declines in Japan, Russia and Romania, although the brand did manage to grow and maintain its market share in those countries. The group’s revenue grew in constant currency terms for the three months, driven by continued strong pricing momentum and the acquisition of PT Bentoel Internasional Investama Tbk (Bentoel) in Indonesia on 17 June 2009. All regions increased revenue at constant rates of exchange with particularly strong performances from Africa, the Middle East and the Americas. Revenue benefited further from the favourable impact of exchange rate movements.
Improvement in productivity savings
BATS made further progress with productivity savings and is on track to reduce costs by £800m in 2012, which is in addition to the £1bn saved between 2003 and 2007. The principal areas of focus continue to be the supply chain through initiatives such as the Global Leaf Pool program and a reduction in overheads and indirect costs. To increase its presence in the Asia-Pacific region BATS acquired Indonesia’s fourth largest cigarette maker Bentoel for £352m. In the period from 17 June 2009 to 31 December 2009, the acquired business contributed revenue of £105m and profit from operations of £6m.
Technical outlook
BATS is making a higher low of 2073.0p in the falling market indicating consolidation with a positive trend in the stock. MACD (moving average convergence/divergence) is positive and 12 day EMA (exponential moving average) is below 26 day EMA supporting a consolidation. 14 day RSI (relative strength index) is trading above 50 with higher lows suggesting strength in the formation of a positive trend. It has also crossed above 20 day and 50 day EMA, supporting a positive trend. Negative 14 day DMI (directional moving index) is above positive 14 day DMI indicating a negative trend, but ADX (average directional index) is near 18 supporting consolidation. If the stock holds the level above 2100.0p a higher move can be expected, with resistance near 2200.0p.
Trading strategy
The stock can be bought around 2090.0p with a profit target 2299.0p and stop loss of 2000.0p.
| Sector |
Non Life Insurance |
Last closing price
(05/07/2010) (p) |
1398.0 |
| 52 week High/Low (p) |
1441.0/863.5 |
| Market Cap (£bn) |
3.73 |
Sector weight age by
Market Cap (%) |
21.3 |
| Average Volume (k) |
693.8 |
| P/E ratio (TTM) |
23.74 |
Sector P/E
ration (TTM) |
8.06 |
TTM: Trailing Twelve Month
Daily chart (ADM.L)
Business background and investment rationale
Admiral’s principal activity is the administrating and selling of private motor insurance and related products. The company sells, administers and underwrites private car insurance in the UK through four brands: Admiral, Bell, Diamond and elephant.co.uk.
Strong performance in first quarter of 2010
In an interim management statement announced in April 2010, Admiral’s first quarter turnover increased by 28% to £345m from £269.53m in the previous year. The number of group customers was up 20% to 2.22 million from 1.85 million in 2009. At the same time, the company continued to increase premium rates during 2010, broadly in line with the UK market where premiums are rising to compensate for hikes in inflation over recent years.
UK ancillary contribution per vehicle showed a modest improvement versus the financial year 2009, while turnover from non-UK car insurance increased by 31% to £21m from £16m in 2009.
Expansion in new markets
In March 2009, Admiral launched its price comparison website into other markets, by launching Rastreator.com in Spain, followed by LeLynx.fr in France and Chiarezza.it in Italy earlier this year. The group also sold its 25% stake of Rastreator.com to Mapfre, Spain’s leading insurance group. This deal sharply reduced the need to employ Admiral’s own capital and therefore lowered the group’s overall risk.
In 2009 Admiral entered the US market with Elephant Auto Insurance. The group will take 33% of the risk in Elephant, while Munich Re and Hannover Re share the remaining risk equally. In 2010 Elephant will concentrate on running operations effectively in Virginia before Admiral considers taking on an additional stake.
Technical outlook
On the daily chart, stock is continuously in an uptrend after it broke out above 1300.0p and is trading in the opposite direction from the FTSE100 index making a new 52 week high of 1441.0p. Momentum oscillator MACD is positive and 12 day EMA is below 26 day EMA indicating consolidation. RSI is below 60 and has fallen from the overbought level of 70 and is forming lower highs, indicating a downtrend is forming in the stock. 14 day positive DMI is above 14 day negative DMI, while ADX is near 23 indicating a consolidation. Admiral is still trading above 20 day and 200 day EMA indicating an uptrend for the stock. Stock has immediate resistance at 1284.0p, and support near 1450.0p.
Trading strategy
Stock can be sold near 1420.0p with a profit target of 1278.0p and stop loss of 1481.7p
Stocks Update
Randgold Resources PLC
On the daily chart, Randgold made a new 52 week high of 6600.0p last Monday, but after it fell significantly indicating a consolidation in the stock. The stock is trading above 50 day and 200 day EMA, suggesting an uptrend. MACD is positive and 12 day EMA is below 26 day EMA indicating a recent fall in the stock. 14 day RSI is near 50 which indicate consolidation. 14 day positive DMI is below 14 day negative supporting the consolidation. Looking at the consolidation in the stock, it should be a hold with a reduced profit target of 6250.0p.
Fidessa PLC
On the daily chart, Fidessa is trading in a narrow range of 1300.0p and 1350.0p indicating there was little movement in the stock last week. MACD is negative and 12 day EMA is below 26 day EMA, indicating a consolidation in the stock. 14 day RSI is below 50 but had flat movement in the last week indicating consolidation. 14 day negative DMI is above 14 day positive and ADX is near 15 indicating consolidation. Stock has a strong resistance near 1400.0p and support near 1250.0p. Stock should be a hold with a reduced profit target of 1380.0p.
Electrocomponents PLC
Last week Electrocomponents hit the stop loss of 213.7p after trading below the negative trendline, joining its 52 week high of 245.0p. MACD is negative and 12 day EMA is below 26 day EMA, indicating a negative trend in the stock. 14 day RSI is trading below 50 suggesting weakness in trend. All positions should be closed for the stock.
Hikma pharmaceutical PLC
On the daily chart, Hikma is continuously moving above the positive trendline, indicating a positive trend for the stock supported by stock trading above 20 day EMA and 50 day EMA. MACD is positive and 12 day EMA is below 26 day EMA, which indicates small correction in the stock. 14 day RSI is above 50 suggesting strength in trend. Positive DMI is above negative DMI, while ADX is near 30 showing an uptrend. Stock should be a hold with the same profit target.
Aggreko PLC
On the daily chart, Aggreko is in a consolidation phase after a steep rise in the stock. MACD is positive and 12 day EMA is below 26 day EMA indicating a consolidation in the stock. RSI is also above 50 showing a small correction following a sharp rise in the stock. Stock prices are also trading above 20 and 50 day EMA confirming the short-term positive trend for the stock. Positive DMI is above negative DMI indicating a positive trend. Stock has resistance at 1500.0p and support at 1300.0p. Stock should be a hold with the same profit target.
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 2010:
| |
% Distribution of recommendations |
No of recommendation |
| Buy |
88.5% |
23 |
| Hold |
0 |
0 |
| Sell |
11.5% |
3 |
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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