Fresh talk of tightening
After a reasonable first quarter, further monetary tightening seems on the cards 

Equity markets ended ahead in the first quarter with the Dow Jones Industrial Average 3% higher, FTSE 100 up 5% and AIM 8% better. However markets may get a little tougher from here on as monetary conditions are tightened around the world to prevent the development of inflationary pressures. Billions have been pumped into the global economy in quantitative easing which some commentators have suggested is just a road map to higher interest rates, because these measures that were aimed at reviving the economy eventually create rising prices. Already statements by central bankers seem to be heralding in a restriction of the money supply in many economies around the world. In the US, recently Ben Bernanke, chairman of the Federal Reserve, warned that monetary tightening will have to begin before things get back to normal. Whilst in Europe, Jean-Claude Trichet President of the European Central Bank has signaled that the bank will try to avoid extending its own monetary stimulation scheme. Monetary tightening seems to be most advanced in Asia, where the central bank rates in India and Australia have already been raised; and to date China has only made cut-backs in the economic stimulus packages. Meanwhile, in the UK, there is little agreement between economists who forecast that the first rate rise will occur somewhere between now and mid-2011 and looking at swap markets suggests that City expectations are for rates hit 1.25% before the end of summer 2011. However such forecasts could be change spectacularly swiftly if there are further signs of recovery in evidence at home or in the US.

Host of contract wins

In the last couple of weeks, international infrastructure contractor Balfour Beatty has announced a series of new contract wins totalling in excess of £750m which just shows the variety of projects that the Group is involved in. Firstly, its 50% owned Gammon Construction Limited won a £407m railway infrastructure contract in Hong Kong. Secondly, Balfour Beatty has been awarded £70m of support services work from The Highways Agency which is an extension of any earlier contract and covers strategic motorway and trunk road networks in the South West region. Thirdly, there was a combined £130m from waters companies: £70m contract from Yorkshire Water for the design and build of a water networks in the southern area of its licence area, plus a £60m contract from Anglia Water for repair and maintenance. Lastly, North East Lincolnshire has selected Balfour Beatty as its regeneration, property, professional and technical services partner in a £250m 10-year contract that involves the provision of highway transportation and planning as well as asset management and architectural services. Ahead of these deals, Balfour Beatty finished last year with a forward order book of £14.1bn. When the final results announced in early March, Ian Tyler, CEO, explained that the management was seeking to gain substantial added value by combining the Group's capabilities in order to provide an integrated capability for major customers in order to benefit from the long-term growth in investment in infrastructure. The consensus forecast for the current year is that the revenue will grow 11% to £10bn with pre-tax profits 19% higher at £318m and earnings per share 4% lower at 33.23p, which seems to put the shares on an undemanding prospective PE of 8.8. A trading statement on Thursday may have analysts reworking their forecasts.

Back in business

Canadian-aggregates concern Pan Pacific Aggregates (PPA) is back in business following the opening of a new haulage access road to its Quadling Quarry, which is the new name given to the Pumpstown Quarry. On the quarry floor sits 150,000 tonnes of material which has already been processed and the Company is now receiving orders for these aggregates. Apparently the selling of this material will allow PPA to complete the purchase of the quarry and also set up the crushing equipment that is expected to be delivered in April. The quarry is in a good location to major road systems for competitive hauling to serve the numerous current and planned infrastructure projects within the Fraser Valley/Vancouver area of British Columbia. Certainly the Federal Government has recognised that the Fraser Valley road infrastructure running into Vancouver and from the Lower Mainland needs urgent upgrades and replacement. The board believe that Quadling will be a long term profitable enterprise and the quarry is planned to be developed in three phases with full production being achieved by the end of 2011. There was also news that Wood Bay has been sold with the net proceeds of C$1.2m being paid to the RAB Special Situations (Master) Fund Limited (RAB). This satisfies the deferred payment obligation under the agreement with RAB to buy back the loans issued to the Company by RAB. That move would seem to mark the end of the tidying up of PPA and now a new chapter begins.   

Unlikely to stay single

Demergers are used by management to gain a fuller valuation for two parts of a diverse business. TalkTalk Telecom Group has been created by the demerger of the Carphone Warehouse into the telecoms division and Carphone Warehouse that own 50% of the retail stores in a joint venture with US electronic retailing giant BestBuy. In the split, for every two old Carphone Warehouse shares, shareholders received one new share in TalkTalk and one new share in Carphone Warehouse. Certainly TalkTalk accounted for close on two-thirds of the valuation placed on the previous combined entity. TalkTalk is one of the leading fixed line voice and broadband telecommunications businesses in the UK and provides a value-for-money service to more than 4.1 million broadband customers and 1.1 million voice only and narrowband customers. The Group markets its services to residential customers using the TalkTalk and AOL brand names; and to business customer using the Opal brand. Broker Merill Lynch believes that the business is unlikely to remain single and sees a takeover within two to three years by a mobile operator attracted by TalkTalk's strategic position as the leading UK residential broadband supplier along with the opportunity to roll-out additional value-added services to such a customer base.

Drilling news

Solo Oil is the old Immersion Technologies which has been taken into the oil and gas business where it is looking to acquire a diverse portfolio of exploration, development and production assets in the Americas, Europe or Africa. The first deal of the new strategy has been farm-in for a 12.5% interest in the Likonde-1 well on Aminex's Ruvuma Basin in Tanzania, in which the partners are Tullow Oil (50%) and Aminex (37.5%). Operator Tullow Oil spudded the Likonde-1 well on 9th January which was drilled for a total depth of 3,647 metres and encountered thick sands with hydrocarbon shows. The results of drilling, wireline logs and side-wall coring have shown that the well intersected two sandstone intervals of over 250 metres combined thickness with evidence of residual oil and gas. Drilling had to be terminated due to high gas influx and the well has now been plugged and abandoned. In a statement Tullow Oil pointed out that this was the first of a two-well programme within the prospective Ruvuma delta region and that the encouraging results will be followed up with detailed technical work before selecting the next drilling location. Solo’s Chairman David Lenigas commented: “The completion of Likonde-1 and the results obtained from the Company’s first wildcat well in Africa represents a major step forward in establishing the potential of the Ruvuma Basin. Solo has the option of becoming a full joint venture partner with 12.5% of the entire 12,360 sq kilometre Ruvuma Licences by committing to a second well.” In November 2009, Solo raised £6.4m at 0.5p and following the drilling of Likonde-1 well is expected to have £3m left.

Three potential acquisitions

Technology developer Technis International announced that the board are in negotiations with three potential acquisitions which are: Professional IT (Logistics) Limited, Controlled Thought Limited and Case Communications Limited. Professional IT (Logistics) Limited is a leading provider of software for the management of private hire and courier contracts which is used by major banks, law firms and media companies. Whilst Controlled Thought Limited is a call centre operator providing outsourced customer services for a range of clients mostly within the financial services and telecommunications industries. Investors first learn about the potential acquisition of Case Communications Limited in early March, when the board reported that it was in talks with this manufacturer of ruggedised routers for harsh environment as well as specialist communications routers. In each case the acquisition would involve paper as well as cash. The directors do point out that the cash element of each such deal plus working capital would need to be raised and in today's markets that cannot be relied on an so any or all of these deals might not happen.

Helping indebted individuals

Personal debt resolution adviser ClearDebt seems to have enjoyed a good first half. The Company is a the midst of becoming a significant player in the Individual Voluntary Arrangements (IVAs) market that two years ago sensibly choose to create a more broadly based business by the acquisition of Abacus which took ClearDebt into the Debt Management Plans (DMPs). In the six months to 31 December 2009, turnover climbed by 57% to £2.3m which allowed pre-tax profit to quadruple to £425,185. There was a healthy increase in the number of IVAs passed which rose to 350, compared to 200 in the first half of the Company’s previous financial year. In December 2009, ClearDebt acquired 6,500 clients through the purchase of IVAs, DMPs and Protected Trust Deeds from the failed Relax Group plc which is one fell swoop doubled the number of clients under management. The board envisages further growth on the second half on the back of the pipeline of new business. David Mond, CEO, commented: “...The combination of the wider economy forcing more individuals into debt, our diversified and scalable business model and crucially the realisation by the major lenders that a well-designed IVA is in their best interests leads us to believe that prospects for further growth are encouraging for the foreseeable future.”

In's and Out's from the Bridge Hall CFD Desk

As we mentioned last week, with the holiday period looming, it has been quite a subdued week. Volumes have been reasonably thin in specific stocks but certain other stocks, for example Vodafone (VOD.L) and Rio Tinto (RIO.L), have had quite large volumes and the accompanying movements that come with that.
We had quite a large day with US economic data on Wednesday and the week is finished off again with large U.S data in Initial Jobless Claims on Thursday, followed by Change in Non Farm Payrolls at 13.30 on Friday. With it being Good Friday on the day this figure is released, and the UK Markets being closed, this should give us a good lead into next week and an indication as to how our markets are going to open.
For the bulk of this short week the FTSE 100 has slowly tracked down from the 5733.96 level down to a low of the week at 5649.53, as we type this the FTSE 100 has bounced back today and currently sits at 5729.60 up 50 points. This really does indicate how it has been a very tough market for short term trading this week, limited movement in the market itself has left people concerned as to what specific levels to place themselves in the relevant companies.  With the Easter weekend at the end of the week a lot of clients have decided they would prefer to take a view once the long weekend is out of the way, this is something we could not disagree with.
For the bulk of this week we only looked at very short term specific day trades, any longer term trades we have left alone as we do not want to hold them over the holiday weekend. Any company news touted or speculated in the press over the weekend could have detrimental effects on the share price come the open on Tuesday morning.
Next week we have trading statements from British Airways (BAY.L), Marks and Spencer (MKS.L) and Easyjet (EZJ.L). This is all surrounded by the standard economic data with UK Construction PMI on Tuesday and UK Nationwide Consumer Confidence following that on Wednesday.
In what has been quite a quiet week things have remained relatively unchanged, as we head into the second quarter of the year we are looking ahead to next Tuesday where we can hopefully take some positions with some confidence.
Happy Easter to everyone and we will be in touch again next week for another update.

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Featured stocks

Balfour Beatty (BBY)
FTSE 250
Share price:  293p
12 months high-low: 380p – 243.4p
Market value: £2.0bn
www.balfourbeatty.co.uk 

Cleardebt Group (CLEA)
AIM
Share price:  1.88p
12 months high-low: 2.88p – 1.50p
Market value: £5.80m
www.cleardebtgroup.co.uk

Pan Pacific Aggregates (PPA)
AIM
Share price:  0.85p
12 months high-low: 1.6p – 0.25p
Market value: £13.80m
www.panagg.com 

Solo Oil (SOLO)
AIM
Share price:  0.52p
12 months high-low: 1.33p – 0.13p
Market value: £10.82m
www.solooil.co.uk 

TalkTalk Telecom Group (TALK)
FTSE 250
Share price:  130.7p
12 months high-low: 139.2p – 120p
Market value: £1.2bn
www.talktalkgroup.com 

Technis Interntional (TECP)
PLUS
Share price:  3.75p
12 months high-low: 8.5p – 2.75p
Market value: £2.13m
www.technis.co.uk 

Directors dealings

Directors dealings can provide a useful insight
       
Director buys
Byotrol (BYOT) 50,000 @ 22p
Carbondesk Group (CO2P) 4 directors 100,000 @ 15p
China Food Company (CFC) 2 directors 15,855 @ 33.5p & 33.7p
Croma Group (CMG) 267,525 @ 1.845p
WH Ireland (WHI) 25,000 @ 40p
Logica (LOG) 2 directors 179,555 @ 132.9p
Montisse (MON) 120,392 @ 16.5p
Norseman Gold (NGL) 80,670 @ A$0.70
Personal Group Holdings (PGH) 800 @ 295p
Volex (VLX) 40,000 @ 103p

Director sells
Advanced Medical Solutions Group (AMS) 74,000 @ 37.5p
Alliance Pharma (APH) 489,250 @ 33.25p
Group NBT (NBT) 1,000,000 @ 308p
Ishaan Real Estate (ISH) 30,000 @ 65p

The above list of transactions represents a selection of the directors' buys and sells reported last week

Written by Dr Michael Green - Independent analyst – DOC Investments Limited – doc@docinvest.co.uk




 

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