Support services and construction group Interserve is one of the best places for one to invest their hard earned money in, The Times' Tempus believes. The company's exposure to UK construction has tended to hang over the shares, as 35 to 40 per cent of revenues, but rather less in profit terms, is linked to this sector. But this is generally spending in areas such as schools, hospitals and water, which are non-discretionary and have held up well. Far more important, and as one broker recently pointed out, through its recent acquisitions the company has regained the profits it lost through the disposal of minority private finance initiative (PFI) stakes, but after investing only £50m or so, roughly half the proceeds which it gained.
The company is set to release a trading statement on this same Tuesday morning. While this is unlikely to provide much of an update on the reassuring note that accompanied the PFI deal, it could trigger some earnings upgrades for the current year. The shares are on a little more than eight times this year's earnings and yield about 5.5 per cent prospective. "Needless to say, I reiterate my recommendation," Tempus says (Last IC rating: Buy, 28 Nov).
Despite the promise of its merger with Melrose Resources, shares of Petroceltic International have trod water since the merger and are well back from the first quarter of last year. That is the result of exploration and production setbacks in Egypt and Italy. However, there are four significant developments that could provide some fresh impetus in the near future. To that one must add its tantalizing prospects in Algeria and Kurdish Iraq. Hold for now, writes Tempus (Last IC rating: Buy, 29 Aug).
EasyJet's day-glo orange has been the sector's high-flier over the past year - but can this outperformance continue? December statistics, released yesterday, were excellent. The load factor, which measures how full the planes were, rose by 2.3 percentage points to 87.9 per cent. An increasing load factor is particularly good for easyJet as its model is based on charging more for seats as the plane fills up.
Prospects for the budget airline this year look pretty good, especially since the risk for fuel costs appears to the downside. As well, flag-carrier airlines are overhauling their short-haul operations, which could lead to easyJet gaining market share. However, ahead of the statement yesterday easyJet shares showed an above-average level of 'short interest' in the shares - these are investors who think the price could fall. In the month before the announcement, short interest in easyJet shares more than doubled to 6 per cent from 2.7 per cent.
Some analysts have said they see more upside in IAG that easyJet because as the Iberia issue is rectified it will become a catalyst for outperformance. Questor is yet to buy into this argument and easyJet shares remain Questor's favoured European airline. However, on valuation grounds, the shares remain a hold, Questor adds (Last IC rating: Sell, 20 Dec).
Business press headlines:
Diageo's public offer to buy a stake in India's United Spirits is facing delays as it awaits regulatory approvals, it emerged yesterday. The drinks giant had agreed in November to pay £1.3 billion for a 53.4 per cent stake in United Spirits under a two-stage process including a mandatory tender offer which was set to open yesterday and close on 18 January. In a filing to the Bombay stock exchange, JM Financial Institutional Securities, which is managing the offer to buy 26 per cent of the company's shares, said a revised date range for the offer will be set. It is understood to be awaiting approval from regulators in India to proceed. [The Scotsman]
The managing director of British Gas is set to leave the business with a pension pot, shares and basic salary worth more than £10m, amid public and political disquiet over soaring household bills. Phil Bentley, who oversaw a 6 per cen increase in bills this winter, is expected to confirm that he is stepping down this year. He is believed to harbour ambitions to become a company chief executive in his own right. According to the annual report of Centrica, the parent of British Gas, Bentley has an interest in just under 2m Centrica shares, worth £6.65m at closing share price. The 53-year-old executive is also expected to depart with a year's basic salary, which came to £635,000 in 2011, along with his £3.6m pension pot. [The Guardian]
A nationalised Spanish lender is about to dismiss 890 workers, the latest in a wave of job losses from the country’s struggling financial sector, it was claimed last night. Banco de Valencia, which was bought for €1 recently by La Caixa, Spain's biggest retail bank, will sack more than half of its workforce, the General Workers' Union (UGT) said. Banco de Valencia declined to comment but said that it would begin talks with unions next week. [The Times]
Booming online sales were the difference between growth and contraction for stores this Christmas. A renewed spurt of internet spending saved shopkeepers from a decline in sales at their most important time of year, according to the British Retail Consortium. It was the first time that online spending has made the difference between sales rising and falling. The rate of growth in online spending fell gradually throughout 2012, until it leapt for the second December in a row. Historically, it has been a less important month in the e-commerce calendar as shoppers headed for the high street, instead. [The Times]
The US is "seriously" considering creating a $1 trillion platinum coin to write down part of its debt to stop the world's largest economy defaulting as early as next month, according to financial analyst Cullen Roche. Speaking to the BBC's Today programme, Mr Roche, founder of Orcam Financial Group and blogger at Pragmatic Capitalism, said the idea was being taken "somewhat seriously" in Washington. "I know it’s been spoken about at the White House and a number of prominent people, including congressman, are talking about it," he said. [The Telegraph]
US banks agreed to pay out more than $20bn on Monday in two settlements to resolve claims arising from the mortgage crisis, with compensation for bad loans wiping out most of Bank of America's earnings for a second successive quarter. Five years after the financial crisis, Bank of America, the second-biggest US bank by assets, agreed to pay $11.6bn to Fannie Mae, the government-controlled mortgage company, to resolve a protracted legal battle over bad loans. In a separate settlement, 10 mortgage lenders, including Bank of America, Wells Fargo, JPMorgan Chase and Citigroup, agreed to pay more than $8.5bn to settle regulators' allegations that they were guilty of widespread abuse of the foreclosure system that allowed banks to seize homes from defaulting borrowers. [Financial Times]
House prices are set to stagnate this year despite the influence of the Bank of England's Funding for Lending scheme, the lender Halifax said yesterday. Despite a surprise monthly rise of 1.3 per cent in December, house prices are 0.3 per cent down on 2011 and likely to remain "broadly flat" in 2013 after a year which "lacked any real direction", according to the bank. The pessimistic forecast comes despite approvals for lending to homebuyers climbing to a 10-month high in November. The Bank of England's recent credit conditions report also predicted "a significant increase" in the availability of finance to households and borrowers this year, in part driven by the FLS. [The Independent]
Supermarket chain Morrisons was left behind over the Christmas period, as shoppers abandoned the weekly trek to its stores in favour of home delivery from its rivals. The Bradford-based grocer, which still does not have a groceries website, said like-for-like sales dropped 2.5 per cent in the six weeks to 30 December. It is likely to be the worst performance of the large supermarket groups and analysts said Morrisons only managed to avoid issuing a profits warning by heavily trailing the poor performance. […] Chief executive Dalton Philips said Morrisons had lost customers who are opting for home delivery, or have chosen to shop in local stores for convenience. He would not be drawn on whether the company would launch a groceries website this year, but said the company would make an announcement at the full-year results in March. "We are looking very closely at it; we like what we have seen so far." [The Guardian]
Rail experts from the private sector will be drafted into the Department for Transport to avoid a repeat of the "very damaging" and "serious" West Coast Main Line scandal. On Monday, Transport Secretary Patrick McLoughlin sought to revive confidence in his department's ability to handle multi-billion-pound contracts as he prepares to publish a major review into rail franchising. A committee of MPs has already called for the Department of Transport to be stripped of its rail franchising role ahead of the report, which has been compiled by Eurostar chairman Richard Brown. [The Telegraph]
