| Sector | Software & Computer services |
| Last closing price (26/09/2011) (p) | 1248.0 |
| 52 week High/Low (p) | 1428.0/1034.0 |
| Market Cap (£ mn) | 467.11 |
| Sector weight age by Market Cap (%) | – |
| Average volume (k) | 135.4 |
| P/E ratio (TTM) | 7.48 |
| Sector P/E ratio(TTM) | 17.51 |
Business background and investment rationale
Kier Group PLC is engaged in construction, support services and Public and Private housing developments.
Strong revenue
In the preliminary final year result announced in September 2011 for the year ending June 2011, Kier’s overall revenue increased by 3.6% to £2.17bn. This compares to £2.09bn delivered in 2010 and reflects the underlying growth in all four business divisions. Underlying profit before tax, before the amortisation of intangible assets and exceptional items, improved 24% to £68.9m compared to £55.5m in 2010 (excluding homes land transaction). Earnings per share on the same basis increased 26% to 148.4p compared to 117.7p in 2010. Operating margins in all sectors increased with the Construction and Services divisions showing growth of 2.7% and 4.5% respectively. Kier increased its full year dividend by 10% to 64 pence per share
Secure order book
Kier’s order book in the Construction and Services divisions showed a healthy £4.3bn at the end of June 2011. The Construction order book (secured and probable) stood at £2.3bn representing 95% of the division’s targeted revenue for 2012 and 46% of its targeted revenue for 2013. This is slightly ahead of normal and the group expects its operating margins to remain firmly above 2%. The group’s order book in Services stood at £2bn giving good forward visibility of workload which, coupled with a strong pipeline of further opportunities, will translate into revenue growth for the division in the year to June 2013. Kier expects its operating margins to be maintained at a resilient 4.5%.
Technical outlook
On the daily chart, Kier is making higher lows indicating an uptrend is forming in the stock. MACD (moving average convergence/divergence) has turned positive and 12 day EMA (exponential moving average) is above 26 day EMA also indicating the formation of an uptrend. 14 day RSI (relative strength index) is above 50 showing strength in the trend. 14 day positive DMI (directional moving index) is above 14 day negative DMI and 14 day ADX (average directional index) is near 20 indicating a positive trend is forming in the stock. The stock is also above 20 day and 50 day EMA which supports the strength in trend. For a higher move the stock has to stay above 1200.0p. The stock has immediate resistance near 1400.0p and support near 1100.0p.
Trading strategy
The stock can be bought around 1230.0.0p with a profit target 1371.0p and stop loss of 1168.0p.
| Sector | Support Services |
| Last closing price (26/09/2011) (p) | 654.0 |
| 52 week High/Low (p) | 736.0/507.0 |
| Market Cap (£ bn) | 2.32 |
| Sector weight age by Market Cap (%) | – |
| Average volume (mn) | 1.18 |
| P/E ratio (TTM) | 21.31 |
| Sector P/E ratio(TTM) | 17.51 |
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 a final year statement released in May 2011, Babcock’s order book following the completion of the VT Group Plc acquisition remained stable at around £12bn compared to £8bn in 2010. The ongoing strength of the order book reflects the constant flow of rebids and contract extensions as well as new agreements from the bid pipeline. This provides the group with excellent visibility. Babcock currently has over 65% of revenue contracted for 2011/12 and over 40% for 2012/13. Among the new deals announced in 2011, Babcock was selected as sole industry bidder for the Ministry of Defence (MoD) Maritime Equipment Transformation programme. This contract is expected to be worth in the order of £300m over 10 years and is the first part of the MoD's extensive programme to improve overall procurement and supply chain management. In March 2011 Babcock was awarded a contract extension to provide army training services at Bordon and Arborfield, through to 31 March 2012 at a value of £19m and the company was also selected as the preferred bidder for the Training Establishment Support Contract for Bordon and Arborfield, worth £22m over four years. The company expects to win more contracts during the economic downturn, particularly with governments looking to keep costs low through outsourcing.
Strong revenue growth
After the acquisition of VT group in 2010, Babcock’s revenue increased by 50% to £2.8bn and operating profit increased by 74% to £286.9m. The strength of the business has delivered underlying organic revenue and operating profit growth of 5% in a period when public sector activity has been relatively low and pressure on budgets has increased. The group’s strong focus on cash has enabled it reduce debt by £729m, with an operating cash conversion rate of 146%. Babcock also increased its full year dividend by 10% to 19.4 pence per share.
Technical outlook
On the daily chart, Babcock is making higher lows and staying above the support level of 636.0p indicating an uptrend is forming in the stock. MACD is positive and 12 day EMA is above 26 day EMA indicating a positive trend. 14 day RSI is near 60 and both the indicators are forming higher low with prices supporting the formation of an uptrend. 14 day positive DMI is above 14 day negative DMI and 14 day ADX is near 20 indicating that the stock is moving upside. The stock has support at 600.0p and resistance at 700.0p.
Trading strategy
The stock can be bought around 640.0p with a profit target 713.0p and stop loss of 608.0p.
Imperial Tobacco Group PLC
Imperial Tobacco hit a reduced profit target of 2150.0p indicating the stock is forming an uptrend. MACD has turned positive and 12 day EMA has crossed above 26 day EMA, indicating strengthening of the positive trend. 14 day RSI is above 50, and both the indicators are making higher lows indicating an uptrend is forming in the stock. 14 day positive DMI is above 14 day negative DMI, while 14 day ADX is near 12 indicating a consolidation in the stock above 1900.0p. All positions should be closed for the stock.
Aggreko PLC
On the daily chart, Aggreko hit a stop loss of 1757.0p. Momentum oscillator MACD is negative and 12 day EMA is below 26 day EMA indicating strengthening in the negative trend. 14 day RSI is below 50 indicating a weakening in the positive trend. 14 day positive DMI is below 14 day negative DMI, while 14 day ADX is near 13 indicating a consolidation in the stock. All positions should be closed for the stock.
Compass Group PLC
On the daily chart, Compass’ positive trend weakened after the stock fell below 540.0p. MACD is negative and 12 day EMA is below 26 day EMA indicating a weakness in the positive trend. 14 day RSI is below 50 showing weakness in the positive trend. 14 day positive DMI is below 14 day negative DMI and 14 day ADX is near 26 reflecting the choppy trading last week. The stock has immediate resistance near 560.0p and has to stay above the support level of 520.0p for further strengthening. The stock should be a hold with the same profit target of 594.0p and a stop loss of 512.0p.
Kesa Electricals PLC
On the daily chart, Kesa is still in a long-term downtrend, but the stock recovered more than 4% yesterday indicating it is oversold, which is supported by 14 day RSI crossing above 30. MACD is negative and in MACD 12 day EMA is below 26 day EMA, indicating a negative trend. 14 day positive DMI is below 14 day negative DMI while 14 day ADX is rising to 49, confirming the negative trend breakout below 100.0p. The stock has strong support at 100.0p and resistance near 60.0p. The stock should be a hold with the same profit target 74.0p and stop loss of 91.5p.
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