Authorised and regulated by the Financial Services Authority

14th August – Another volatile week but a lack of clear direction

There was an early markdown on the FTSE 100 index at the open on the coattails of Wall Street’s late fall, but by mid-morning the gentle buying of recent days had reappeared and the index was virtually unchanged.

All eyes were on Royal Bank of Scotland after the well-received figures from Barclays yesterday, and in the event they did not disappoint. The loss of £691m on a proforma basis, against a £5.1bn profit last year, was not as steep as feared, and the underlying performance was fairly good. Excluding write-downs and other one-off items, total income fell just 1% to £16.8bn and underlying profit declined by 3% to £5.1bn, and by mid-morning the shares were up 3%, which looks fair.

BG Group was another gainer on after it reported a material new oil discovery in the pre-salt Santos Basin, offshore Brazil. It said the exploration well, known as Iara, discovered 30 degrees API light crude oil within the BM-S-11 concession area. There was early mark up here, although sellers have chipped away at the gains, and we remain very cautious towards this sector..

At the bottom end today were some of the miners, with Kazakhmys, Vedanta and Antofagasta all retracing much of yesterday’s gains on falling copper prices. Another casualty was British American Tobacco after the group said it was seeking approval from the Johannesburg Stock Exchange to obtain a secondary listing there to help Richemont and Remgro restructure their stakes in the company.

11th August – Solid start in London on strong US markets and falling oil price

Friday saw a major move up in the US as crude prices fell by around $4, and shares in London were marked up accordingly at the open this morning. Although trading volumes have been fairly subdued so far, there has been good two-way business again and by mid-morning the FTSE 100 index is up around 30 points. The main winners are recovery stories as value investors once again dip their toes, with Wolseley, Old Mutual and ITV leading the board, but there has been interest in the miners after a few big down days recently.

Kazakhmys is going well after it raised its stake in rival Eurasian Natural Resources to above 25%, with the latter’s shares down around 5%. Xstrata is also ahead despite relations with its bid target Lonmin becoming even more acrimonious over the weekend with Lonmin denying reports of a boardroom bust-up.

In other news, United Utilities has proposed an average annual real price increase of 2.7% across the five-year period 2010-2015 to pay for a total capital investment programme of £4bn. The shares are up a touch so far, but remain within a fairly narrow trading range, so we’ll sit back here for now.

12th August – Footsie runs into a bout of profit taking this morning

It has been a good few days for UK equities, so an understandable bout of profit taking this morning occurred after Wall Street edged off the top. Generally the banks led the way down, and weakness in Asia filtered through to falls in Standard Chartered. The miners were also dull again after another sharp fall in commodities, with gold down around $36 last night. At the top end, recovery stocks were still in vogue, with penny share favourites ITV and Taylor Wimpey seeing more speculative support. In economic news, retail sales fell again in July, according to the British Retail Consortium, which warned that things could get worse, as like-for-like sales dropped 0.9% last month, while total sales were up just 1.7% against last July, one of the worst performing months of 2007.

On a quieter day for news, Tesco announced plans develop a wholesale cash-and-carry business in India, with an initial investment of up to £60m in the first two years. The new wholesale outlets would be designed for the Indian market following local research, and it is also entering into an exclusive franchise agreement with Trent, the retail arm of the Tata Group.

InterContinental Hotels saw a 29% rise in H1 operating profits to $284m, in line with forecasts, but added that growth had slowed through Q2, and market conditions had become more challenging, particularly in the US. The shares saw an early markup but this looks unsustainable given the cautious tone of the statement and we see a pullback in the next few days.

13th August – Bout of profit taking hits Footsie early on

The short term near trend of recent days took a breather today as profit takers moved in and there was some sector rotation in London with banks and retailers leading the fallers. Barclays, HBOS and Royal Bank of Scotland were all down sharply after news from the US yesterday that the second phase of the credit crunch is leading to another round of writeoffs. Consumer were already weak but fell again after figures showed UK unemployment growing at its fastest rate for over fifteen years. Enterprise Inns, Marks & Spencer and Kingfisher were among the fallers mid-morning. For a change the miners and oil stocks led the way, after a rebound in commodity prices overnight.

In results, Thomas Cook released another positive statement, saying it was doing well with current trading continuing to be strong. Early indicators showed it was ahead of last year for Winter 08/09 and Summer 09 bookings, but there was a slightly cautionary note to the rest of the statement and the shares fell almost 5%. We share that caution and would not look to be buying these just yet.

British Energy, currently in the throes of a bid, said its underlying profit nearly halved to £129m, from £253m, in Q1. It blamed this on lower output and higher costs incurred in respect of the BCU modifications, but added that its Heysham 1 Reactor 1 was close to a return to service. The shares have edged up and we would stay with them pending the outcome of the current takeover battle.

14th August – Miners surge up to give Footsie a big push

The highlight of the morning so far has been a big gap up in the leading mining stocks after commodity prices saw a sharp recovery, and by mid-morning BHP Billiton, Antofagasta and Rio Tinto were all up over 5%. There were also some impressive moves elsewhere, and a highlight was Logica which shot up 12% after it raised its full-year revenue growth forecast and reported a 31% jump in adjusted operating profits in H1. These sorts of occurrences are rare and this confirms the bullish trend here.

TUI Travel was also slightly ahead after it announced a 39% rise in underlying operating profit in Q3, and said it was confident that its expectations for 2008 and 2009 could be achieved. Like Thomas Cook yesterday, we do not doubt the management quality here but it could be a tough rise for consumer stocks for some months yet.

Elsewhere, British Land reported an underlying pre-tax profit of £74m for Q1, down from £76m a year ago, but an IFRS loss of £572m versus a £266m profit in 2007. It said that the portfolio valuation was down 5% this quarter, while nav dropped 10% to 1,212p a share, and it is hard to see these shares progressing short term. Bellway said it sold 6,556 home in the twelve months to July, 14% less than the year before. It added that it did not expect widespread land write downs, but the position was being monitored in light of market conditions. With reservations down by around 45% in H2, and a lower group order book for future sales, this looks another stock that could soon come under severe pressure again.
 

Research done by Blue Index, the

Trading Experts
14/08/2008

< back