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Press headlines & tips: Babcock International, Costain, DS Smith

Find out which shares today's quality papers are tipping
November 7, 2012

PRESS TIPS:

Tempus in The Times writes that there are signs now, from Babcock International's halfway figures and the outlook for the next year or so, that orders are coming through as local authorities and central government seek ways to cut spending by having work done more cheaply by the private sector. Babcock won some significant contracts in the second half of the last financial year and these have fed through to a rise in underlying revenues in the first half of this year of 6 per cent, to £1.55bn. The standout was the support services side, where revenues were up 18 per cent to £453.9m. Pre-tax profits were up by 13 per cent to £142.7m and the halfway dividend was boosted by 10.5 per cent to 6.3p. The shares, off 34½p at 954½p yesterday after some profit-taking, are on about 14 times this year's earnings and "may be due a pause for breath, though the longer-term prospects are still good." (Last IC rating: Hold, 6 Nov)

Tempus writes that, as chance would have it, Costain Group was releasing a steady trading statement on the same day that Morgan Sindall, a fellow inhabitant of the construction and property sector, was unveiling a nasty profit warning. The two could not be more dissimilar. The latter's problems are in social housing and new building, while Costain is in neither and prefers to refer to itself as an engineering solutions provider. Costain has been adding to its core skills by buying into oil and gas consultancy and industrial services, offering those clients a wider range of services. The order book is strong, £2.4bn for about two and a half years of revenues, £1.6bn for 2014 and beyond. One day the company will be reassigned to the support services sector, which should mean a rerating. "Long-term, attractive, but no obvious reason to buy in now" (Last IC rating: Buy, 30 Aug).

Questor in The Telegraph writes that recycled packaging group DS Smith confirmed yesterday that it continues to see "substantial" year-on-year earnings per share (EPS) growth following its purchase of SCA Packaging earlier this year. The recycled packaging group is focusing on servicing fast-moving consumer goods (FMCG) companies across Europe. This means Smith has a lot of euro exposure after buying Swedish company SCA for €1.6bn (£1.3bn) in January. This prompted a share price fall earlier in the year but these fears were significantly overdone and its shares have soared in the second half. Even after recent gains, the shares are now trading on an April 2013 earnings multiple of 12.8 falling to 10 next year. This is not overly stretched. "They were last tipped as a buy at 154½p in July and the shares remain a hold." (Last IC rating: Buy, 6 Sept)

 

Business press headlines:

The Bank of England should hold fire on injecting more money into the economy until the impact of the Funding for Lending scheme is clear, The Times' Shadow Monetary Policy Committee believes. Rupert Pennant-Rea, chairman of Henderson Group and a former Bank Deputy Governor, voted against increasing quantitative easing, arguing that the lending scheme introduced by the Bank in August should increase the flow of credit into the economy. He was joined by Andrew Sentance, a senior economic adviser to PwC, who said that the MPC would need to plan an exit from quantitative easing if growth continued to pick up into next year.

Hedge funds are betting there will be blood on the high-street this Christmas as Britain's retail stocks dominate a list of big short positions that has been published for the first time. The secretive financiers have bet millions of pounds that companies including WH Smith, Home Retail Group, Ocado, Sainsbury, Tesco and Dixons will fall in value, according to a list published under new rules by the Financial Services Authority (FSA). Lansdowne Partners, one of London's best known hedge funds, has short sold 0.63 per cent of the value of Tesco - a £163m bet that the supermarket's shares will fall. The Mayfair-based group has a 2.51 per cent short position in WM Morrisons, worth £159.8m. GMT Capital, an American group, has built up a 3.56 per cent short position in Carpetright - which is worth just £16.3m but is the third biggest position of the list relative to the size of the company. Barrington Wilshire, another US fund, has a bet against Mothercare worth £8.24m or 3.18 per cent of the company's market value. Two hedge funds have revealed big short positions in Marks & Spencer, whose shares rose 1.18 per cent yesterday despite revealing a 10 per cent slide in profits, The Telegraph reports.

Britain is prepared to walk away from talks with French giant EDF Energy over its planned UK nuclear plant if the burden for the consumer is too high, said John Hayes, the energy minister. EDF, majority-owned by the French state, is negotiating with the UK Government over a guaranteed price for electricity from the plant at Hinkley Point in Somerset, which would leave consumers liable for "top up" subsidies. Mr Hayes on Tuesday told a select committee hearing that the Government has a bottom line it will not abandon, after MPs asked if the Coalition is prepared to say "that's too much for the consumer". "Absolutely," he said. "There's absolutely no doubt - and as I looked into the eyes of [EDF Energy chief executive] Vincent de Rivaz yesterday, I told him that the Government will always put the national interest first," the Minister further added, according to The Telegraph.

According to those in the know, representatives of a major Canadian life insurance group are in town shopping for a UK fund manager. But yesterday it was rumours of a £14bn or 250p a share cash offer from US insurance giant MetLife which got Legal & General excited. Its shares raced away on well-above average turnover of 22m to close 3.9p up at a 52-week high of 144.2p. MetLife operates in Latin America, Europe, Asia's Pacific region and the Middle East. It is one of the largest global providers of insurance, annuities and employee benefit programmes, with 90m customers in more than 60 countries. It has assets of $730.9bn and apparently has a big war chest for acquisitions and wants bigger exposure to the UK market. Legal & General is no stranger to takeover speculation and is forever mentioned as possible fodder for Allianz or Australia's AMP. Resolution, up 15.4p to 236.6p on a Bank of America/Merrill Lynch recommendation, has often been mentioned in the same breath, according to The Daily Mail.

BHP Billiton has quietly started looking for a successor to Marius Kloppers, chief executive, in what could herald a further shake-up in the leadership of the global mining industry following a five-year period of stability. The process, led by Chairman Jac Nasser, is at a very preliminary stage and a succession at the top of the world's biggest mining company by market capitalisation could take another 12 to 24 months, according to people familiar with the talks. BHP's move could mark a period of significant change in miners' executive suites, after several years in which chief executives of the largest global mining houses have clung on to their jobs despite the industry turbulence in the wake of the 2008-09 global financial crisis, the Financial Times says.

Investors will be forced to buy billions of dollars of Brent oil futures and sell US crude after S&P GSCI, the most widely tracked commodity index, said it would increase the weighting of the North Sea benchmark at the expense of West Texas Intermediate. The change, effective in January, is likely to affect the price difference between Brent and WTI, one of the favourite spreads traded by specialist hedge funds and commodities trading houses. The expected increase in Brent buying was likely to force the spread between the two global benchmarks to widen further, analysts and traders said. Brent has for years traded at a $1 to $2 a barrel discount to WTI. But since mid-2010, Brent has traded consistently at a premium to WTI due to a logistical bottleneck around Cushing, the Oklahoma town that serves as the delivery point for the WTI contract. JBC Energy, an oil consultancy, said the repercussions of the reweighting on the WTI-Brent spread would be "a hotly discussed issue over the coming months". Investors including pension funds gain commodities exposure by tracking the S&P GSCI, writes the Financial Times.