PRESS TIPS:
Tempus in The Times says the warning from Johnson Matthey that hit the market yesterday was not quite as drastic as those that have afflicted other global industrial producers this autumn, but the burden was much the same. The outlook for the global economy, and for key sectors such as American trucks and new investment in Chinese industry, is, at best, uncertain.
In addition, about half the group by revenues is involved in the refining and distribution of precious metals, such as platinum and palladium. While plainly these feed into the group's catalytic convertors and other products that go into vehicles and industrial processes, performance here is driven by the background price of such metals, as well as demand from producers of jewellery and the like. This side has been hit by lower prices, with platinum off 16 per cent in the first half to the end of September.
The main concern for the market was that the outcome for the second half of the year, which traditionally is about 10 per cent stronger in profit terms, will be little-changed on the first half. Pre-tax profits will come in, therefore, 10 per cent or so lower this year, at perhaps £385m. This puts the shares, off 135p at £21.90, on about 14 times' earnings, after a decent run over the past year helped by the special dividend. At that level, and with no prospect of an immediate recurrence of that special payment, it is hard to see any reason for a short-term outperformance (Last IC rating: Hold, 21 Nov).
Tempus says that Hyder Consulting is where it wants to be, focused on growing markets such as the Middle East and Australia and on areas such as energy, transport and the environment where the margins are rather better than in those it has exited, such as consulting and architecture. So it is only reasonable that shareholders should begin to benefit from this repositioning.
First-half revenues to the end of September were 8 per cent higher at £150m, and profits before tax and one-offs 28 per cent up at £12m. Large projects, such as reservoirs and roads in Qatar, a country that the company has been targeting, are now contributing, while the company is well placed to win work from the metro being built in Doha, the capital. In Australia, Hyder gets about two thirds of revenues from transport and so is not exposed to a downturn in mining. China suffered a small halfway loss as work slowed down ahead of the country's change of leadership.
One of the better metrics for such companies is the number of staff employed, and this rose by 8 per cent, with more to come. Investors will see the halfway dividend doubled to 4.0p. This is, in part, a rebalancing exercise, but an expected full-year payment of 11p puts the shares, up 38p at 419.5p, on a forward yield of 2.6 per cent, while they sell on about nine times' earnings. They are now up by almost a quarter since May, though, which suggests that much of the good news may be in the price for now (Last IC rating: Buy, 21 Nov).
Questor in The Telegraph writes that catering group Compass is a well-run, globally diversified company operating in a defensive sector. It provides outsourced catering operations and support services for private companies such as Rio Tinto and public organisations such as The Pentagon and the Welsh Assembly. It also does catering at sporting events such as Wimbledon. As is usual, its full-year results contained no surprises to give investors fright.
Annual revenues rose 8 per cent to £16.9bn, but pre-tax profits slipped to £789m from £958m because of a £295m restructuring charge for Europe. When charges are stripped out, including one associated with the UK reorganisation last year, profits rose 7 per cent. The prospective yield next year, based on analysts' forecasts, is 3.3 per cent. The total dividend was increased by 10 per cent to 21.3p and the final payment of 14.1p will be made on January 25th. The stated dividend policy to grow the dividend broadly in line with constant currency earnings, maintaining a cash cover of two times.
Shares in Compass, which remains the world's largest food service group are trading on a 2013 earnings multiple of 15.2, falling to 14.1 in 2014. The shares are at about the same level as when Questor gave an update in September. Analysts see more upside, with the average price target of the 20 analysts monitored by Bloomberg being 745.3p, some 6 per cent above the current share price. However, the shares still look fully valued and, although they offer good long term growth and a progressive dividend, they look fully valued for now. Questor says hold (Last IC rating: Buy, 21 Nov).
Business press headlines:
Israel and the Islamist Hamas group agreed to an Egyptian-brokered ceasefire on Wednesday, ending a bloody eight-day conflict in and around the Gaza Strip that has claimed the lives of at least 152 Palestinians and five Israelis. The truce was announced in Cairo by Mohammed Kamel Amr, the Egyptian foreign minister, in a joint press conference with Hillary Clinton, the US secretary of state. Mr Amr said the recent diplomatic effort had produced 'understandings to cease fire and restore calm and halt the bloodshed that the last period has seen.' [Financial Times]
The chief executives of two of Britain's biggest retailers have written to the Government to seek an extension of Sunday trading hours on December 23, which is expected to be the busiest shopping day of the year. Andy Clarke of Asda and Dalton Philips of Morrisons have sent a letter to Michael Fallon, the Business Minister, calling for trading hours to be extended by up to two hours. The push for a relaxation of trading hours by Britain's second and fourth largest supermarket groups follows lengthened hours during the Olympics and Paralympics this summer. [The Telegraph]
Standard Life, the Edinburgh-based insurance giant, has confirmed plans to cut 139 jobs as it restructures its UK business in preparation for radical reforms in the pensions industry. The group said it needed to introduce "more streamlined and flexible organisational structures" to meet the twin challenges of the retail distribution review (RDR), which will ban commission payments to financial advisers from next year, and new rules forcing employers to provide pensions for all eligible members of staff. [The Scotsman]
The Government is heading for the loss of its triple-A credit rating and a breach of its debt target, one of the world's leading fund managers warned in the wake of a fresh deterioration in the public finances. Myles Bradshaw, of Pimco, the world's top bond fund, said the odds were high that Britain would suffer a downgrade to its credit rating in 2013, but he added that the Chancellor should not to "double up" on austerity in order to prevent politically inconvenient breaches of his short-term fiscal goals. [The Times]
Big banks are good for Britain and must not be broken up, according to George Osborne, as he argued the country's largest lenders were beneficial to society. The Chancellor warned that "aggressively" breaking up banks would do little to benefit the UK and insisted the Government's plans to put in place a so-called "ring fence" to force banks to isolate their riskier, investment banking businesses from their retail arm was the right way to make the financial system safer. [The Telegraph]
Sir Philip Green, the owner of the fashion group Arcadia, hopes to launch its first Topshop and Topman stores in China next year, as the billionaire said retailers should focus on improving their performance and stop "crying" about tough trading conditions on the high street. The entrepreneur yesterday unveiled a leap in annual profits at Arcadia, which also runs the Bhs and Burton brands, and revealed he is plotting a "major push" of its fledgling operation in the US. [The Independent]
The energy regulator, Ofgem, failed to implement its own consultants' recommendation a year ago to tighten up the way energy companies report trading activities - and admits it may now have to revisit the issue. The energy watchdog also confirmed it was tipped off about possible manipulation of the wholesale market on 17 October - more than three weeks before the energy secretary, Ed Davey, was told. Caroline Flint MP, the shadow energy and climate change secretary, who has already called for Ofgem to be scrapped for a tougher regulator, said the public was owed a proper explanation of what was going on. [The Guardian]
Hopes were rising in Brussels that an unlikely deal with the UK over the EU's long-term budget was taking shape, although the chief negotiator was trying to resolve a deluge of last-minute complaints from other countries on the eve of what could be a gruelling summit. The cautious optimism about the UK represents a significant shift: David Cameron, the prime minister, was seen as the biggest obstacle to a deal on the budget, which will cover roughly €1 trillion in spending from 2014 to 2020. The changed mood reflects the encouraging reception that British officials have given to the latest proposal from Herman Van Rompuy, the European Council president. The draft set a ceiling of €940bn for payments over the seven-year period, a €3bn reduction from the current long-term budget. [Financial Times]
