Cold wind blows in from Europe
Worry is that debt fears in the eurozone could affect the global recovery

The wealthier EU members seem to have been persuaded to come to the rescue of their debt-laden neighbours on concerns that European banks might suffer and the euro becomes damaged. The real threat of default by Greece on its sovereign debt was seen as the spark that could ignite a wider financial crisis that might spread to Spain, Portugal and Italy. In recent weeks, bond yields have increased and spreads have widened in such countries, as the major banks have increasingly shied away from doing business with countries that have financially stretched themselves. For some time there has been a quiet boycotting of any over-leveraged entities, whether they be corporations or countries, for the obvious reason – why risk lending when you might not get the money back? It does look that the EU might have ignored Greece's plight for a while, as last year the country's deficit spiralled to 12% of economic output, which is four times higher than the eurozone limit. In an effort to bring some confidence back into their battered economies, the governments in Greece and Spain have been attempting to adopt strong measures to slash the budget deficit, either by increasing taxes or reducing spending. The Greek bond market in global terms is titchy at $350bn, but with today's globally interconnected economy; such a problem could cause knock-on effects elsewhere. There's little doubt that Greece, along with Spain, Portugal and Italy, aren't the only countries straining under the pressure of a burgeoning deficit. With such sentiments swirling around in the market, its little surprise that both the FTSE 100 and the S&P 500 indices have been under pressure, because at the end of the day there is the fear that any sustained turmoil in world financial markets might affect the tentative global economic recovery.

Defence cuts to hit hard

The world's second biggest defence contractor BAE Systems hit the headlines, because it is forking out $450m in penalties to settle US and UK charges concerning the paying of bribes to win defence deals.  These allegations have been hanging over the Group for a decade and so this move really clears the air. Certainly it will take one topic off the agenda come the announcement of interim results on Thursday. BAE is a leading global defence, security and aerospace giant, which provides a full range of products and services for air, land and naval forces; as well as being involved in advanced electronics and information technology. Sales in 2008 were over £18bn, to customers in more than a hundred countries worldwide. However, at present, there seem to be few reasons to get too excited about BAE, as sentiment looks as though it will be against the stock this year. Governments in the US and the UK have both got problems with escalating budget deficits to solve and one area with plenty of scope for trimming expenditure looks to be defence. In the UK, the announcement of defence cuts is likely to be delayed by the general election and the Strategic Defence Review, which the government has decided to hold after twelve years in power. Earlier on this month, broker Goldman Sachs published a thought-provoking piece of research forecasting that BAE's earning could stagnate until the middle of the decade.

Impressive first move

Bob Holt is well-known in the market as the man behind Mears Group, the provider of social housing maintenance and domiciliary care, where early investors could have netted some large gains as the share price rose 30-fold. Bob is also the Chairman of Green Compliance, a provider of "blue collar" compliance, which is helping businesses to meet increasing legislation concerning: water, pest control, fire protection and Energy Performance Certificates. The directors see an opportunity to act as a consolidator in a well-fragmented market and have raised £10m to fund this business strategy. The management has just made its first move by buying a controlling interest in Simon West Limited, which trades as CEA Link. The Company is acquiring an initial 51% stake for £175,000 with the remaining 49% to be bought over the next two years, on a performance-related basis, for a total price which is capped at £1m. The acquired business is based in South Yorkshire, from which it provides an established software platform used to tender for energy certification and other compliance-based work. John Prowse, CEO of Green Compliance commented that "We have been in discussions with CEA Link since late last year and this bolt on acquisition for the Energy Services division will help to establish a strong position for the Company within the Energy Services market place with a number of key institutional clients. CEA Link will provide the Company with a tried and tested compliance based platform to exploit our future portfolio of services." 

Something worth watching

The UK's leading terrestrial broadcaster ITV has been in the spotlight, as BSkyB sold a 10.4% stake at 48.5p but has retained a 7.5% holding for the medium term. In 2006, BSkyB bought this stake at 135p to prevent a possible takeover of ITV by a competitor; but the satellite broadcaster has been forced by the Competition Commission to reduce its holding. Well it's a good move for ITV, as the perceived market overhang has been cleared away and the fact that the line of stock was placed close to the market price does demonstrate strong demand for this cyclical recovery play. The recession heralded a slump in advertising revenues and the consensus forecast is that ITV's final results for 2009 are expected to show earnings per share 53% lower at 1.27p. Looking ahead, the consensus amongst sector analysts is that earnings per share will rise 86% to 2.36p in 2010, followed by a 94% increase to 4.57p in 2011. Recently, the UK government lifted the ban on product placement in television shows, which will boost advertising revenues when the rules change later this year. The move will bring the UK in-line with other European countries, where independent commercial broadcasters have benefitted from such fees for a few years now. Chairman Archie Norman will shortly be joined by Royal Mail CEO Adam Crozier and its thought that this new management team might make big changes, which could include the adoption of a subscription model.

Working with a major retailer

Last year DawMed Systems sold off its healthcare decontamination equipment business and moved into the property game under its new name of Adalta Real. Kevin Gilmore, Executive Chairman, steered the Company into property as the board believed that there would be more upside potential here, than in the medical supplies field. Apparently, the implementation of the New Investing Policy is going better than  expected. The commercial property agency arm has received higher numbers and higher values of instructions for sales, acquisitions, lettings, rent reviews and lease renewals of commercial properties, than had been hoped. Now the board is looking forward to the resultant initial and ongoing revenues. Added to which, Adalta Real is providing a major retailer with a number of services including: commercial land and property acquisitions in the South of England; and the board intends to make the most of development opportunities expected to arise in the financial year beginning 1 April 2010. This information was contained in a business update included a comment from Kevin Gilmore that “We are delighted to have exceeded our original expectations after only five months of activity following the establishment of the New Investing Policy and we regard our connection with the major retail company, which has clear and active policy to further expand its portfolio of retails outlets, as remarkable achievement which bodes well for the Company’s long term future."  

Motive back on our screens

On Friday, shares in Motive Television recommenced trading following the appointment of a new Nomad and a fund raising exercise. The board have been repositioning the Company in the digital terrestrial television (DTT) technology industry and, to this end, have been exiting Motive’s interests in television production companies. The board brought in a new director Leonard Fertig, to spearhead this business strategy. Leonard has been involved in the launch of a number of subscription and video on demand channels in the US including: A&E, Comedy Central, Request Television and DirecTV; as well as being the founding CEO of Central European Media Enterprise Ltd, which he is credited with taking from a start-up to a billion-dollar NASDAQ-listed broadcasting company. The Company’s first deal in the DTT sector, was gaining the worldwide distribution rights (apart from Spain and Italy) for a DTT solution called BesTV®, which is patented middleware, which allows DTT broadcasters to gain extra revenue from offering video on demand (VoD), catch-up TV and other services. In essence, this handy piece of software allows viewers not only to watch all available DTT channels but use services like VoD etc without needing broadband, satellite or even a cable connection. The board is looking to roll out BesTV® globally, using their extensive network of industry contacts; and last week it was reported that the directors are already in discussions with a number of broadcasters in Europe and the US. The Company raised £400,000 from institutional and retail investors, which will be ploughed into the new DTT technology business. This fund raising was backed by the directors with Michael Pilsworth, Executive Chairman, investing £8,000 at this stage; whilst he and his fellow directors also agreed to take 9 million new shares instead of wages.

Oil junior goes into production

In a whirlwind of deals over the past seven months, Nostra Terra Oil & Gas Company has undergone a transformation by turning its back on oil exploration in the Ukraine. The new management has taken the Company into the well-established oil and gas producing regions of the US; and now some of the earlier deals are already starting to bear fruit. Production has begun at the first well in Nostra Terra's Hoffman lease in Kansas and is expected to be joined by a second, before the end of the first quarter. Production from the first well is running at 74 barrels of oil a day and the Company has a 7.8125% interest in the property, which will rise to 25% once the consideration of $0.25m has been paid. On the Hoffman lease, apart from six wells, including a salt water disposal well, there is additional leased acreage where new wells could be drilled in the future. Certainly, the first quarter looks as though it will be a busy time for the Company, as production is also expected to begin in both the Boxberger and Bloom leases.

DXS offer extended

DXS International, the supplier of medical information to GPs, has once again extended its private placing to raise £320,000 at 15p, this time until 26th February 2010. It has been announced that the Chairman has agreed to subscribe for £50,000 for 3333,333 shares at 15p each in the placing. So far £210,500 has been raised but it has to be pointed out that currently the shares are trading at 9p – 11p, which means that it may be possible to buy small amounts of shares cheaper in the market.

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

As we mentioned last week, the market is sitting on a knife edge and nothing has changed in that view, if anything the knife has got a lot sharper.
This has been an exceptionally hard week to trade with Systematic risk dominating the market with the Greek economic woes leading the market. Any economic news that has been due out this week has played second fiddle to the vast news flow from Europe on the debt problems with the PIGS nations (Portugal, Italy, Ireland, Greece and Spain).
As we write this we are awaiting the outcome of various European meetings to see if there should be any bailout for Greece and the outcome of that will give this market some direction. For all of the week that has past the market has been in a state of limbo with specific company risk being overlooked for the larger picture.
Several companies have been reporting this week and the major market movers have been the miners, Xstrata (XTA.L) started the week off, followed by BHP Biliton (BLT.L) on Wednesday and Rio Tinto (RIO.L) on Thursday. All their results were better than expected but they did provide some caution on the future world economic climate and some concerns over how China will react with any changes to their individual economic circumstances. Even so these shares, in a conventional market, are major market movers but during this very tight week there influence did not take affect and the market continued with worrying about larger European issues.
For trading this week we have taken a very defensive stance and we know a lot of the trading floors in town have all been waiting for the Greece situation to be resolved before they look at going back into the market. We took some defensive Longs on Sainsburys (SBRY.L) and BAE Systems (BA..L) the latter being very appealing at these levels as the settlement of the fine with the UK Fraud Office and the U.S Department of Justice took some of the uncertainty surrounding this trade out of the equation. During times of uncertainty, as we have seen this week, we have been trading the indices either to give us a hedge to some of our positions or as a pure speculative trade as to which direction we feel the market may go. From our perspective this has been an exceptionally hard week to trade.
As for next week we have some good companies reporting, and should the Greece situation be resolved market trading will get back to some normality. Barclays (BARC.L) is reporting Tuesday, Wednesday provides us with news on Legal and General (LG.L), Thursday we have Interims from Next (NXT.L) and full year results from BAE Systems (BA..L). All of the above are of specific interest to us and we will be following them very closely.
All fingers crossed we may have some definitive news on the Greece situation prior to the weekend, if  not over the weekend, and if that is the case the shackles will be off for us to get to somewhere near a normal trading day.
Happy trading for the coming week and we’ll be in touch again next week for another update.

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Featured stocks

Adalta Real (ADA)
AIM
Share price:  3.75p
12 months high-low: 13p – 1.5p
Market value: £0.77m
www.adaltareal.com

BAE Systems (BA.)
FTSE100
Share price: 343.5p
12 months high-low: 415.75p – 294.2p
Market value: £12.2bn
www.baesystems.com

DXS International (DXSP)
PLUS
Share price: 10p
12 months high-low: 23p – 7.5p
Market value: £2.32m
www.dxs-systems.com

Green Compliance (GCO)
AIM
Share price: 2.13p
12 months high-low: 4.25p – 0.35p
Market value: £24.86m
www.greenco2plc.com

ITV (ITV)
FTSE 250
Share price: 50.6p
12 months high-low: 59.65p – 16.5p
Market value: £2.0bn
www.itvplc.com 

Motive Television (MTV)
AIM
Share price:  0.38p (pre-suspension price)
12 months high-low: 0.88p – 0.25p
Market value: £2.11m (based on 556.5m shares in issue)
www.motivetelevision.co.uk

Nostra Terra Oil and Gas Company (NTOG)
AIM
Share price: 1.01p
12 months high-low: 2.75p – 0.17p
Market value: £15.65m
www.ntog.co.uk

Directors dealings

Directors dealings can provide a useful insight
       
Director buys
Amino Technologies (AMO) 50,000 @ 32.7p
Avingtrans (AVG) 3 directors 85,000 @ 35p – 36p
BATM Advanced (BVC) 375,000 @ 41.5p
Brewin Dolphin (BRW) 5,000 @ 134.5p
Education Development International (EDD) 12,000 @ 137p
HML Holdings (HMLH) 30,000 @ 13p
Nature Group (NGR) 135,000 @ 9p
Netalogue Technologies (NTLP) 3 directors 187,500 @ 2p
Oxford Advanced Surfaces Group (OXA) 200,000 @ 5p
Speciality Scanners (SCAN) 200,000 @ 2.25p
Systems C Healthcare (SYS) 19,600 @ 51p

Director sells
Cadbury (CBRY) 1,363,520 @ 482p
Desire Petroleum (DES) 3 directors 4,575,000 @ 98.8p
Euromoney Institutional Investor (ERM) 8,000 @ 482p
Mechan Controls (MECP) 2 directors 25,000 @ 130p

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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