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Press headlines & tips: Sainsbury, Aviva, Hikma Pharmaceuticals

Find out which shares today's quality papers are tipping
January 10, 2013

Sainsbury's update yesterday revealed that Christmas same-store sales rose at the lowest rate seen in eight years. However, The Telegraph's Questor thinks there was a lot to be optimistic about in the announcement. The company's like-for-like sales met expectations and its higher-margin (but cheaper) own-label goods are seeing sales growth of 5 per cent, but it is the convenience store format and on-line that are showing good growth.

As well, and when looking out to the long-term, if the UK population continues to rise at the current rate, and there is no reason to expect that it will not, the number of people should hit 70m in the next 15 years, up from about 62.6m today. With more than 7m extra mouths to feed, demand for food and other consumer goods is certain to rise. For all of the above reasons Questor keeps a hold rating on the shares (Last IC rating: Buy, 9 Jan).

The prospects for Aviva this year are so finely poised that any judgment has to be a purely subjective one. The new board, including Mark Wilson, the Chief Executive who took up the job nine days ago, will cut the final dividend for 2012 by as much as 40 per cent in March, or they won't. As one analyst put it, Aviva has now picked all the low-hanging fruit [through disposals for example] and what is left is the drudgework of getting more efficiencies from its remaining British and continental businesses. These are to be had, not least in a revamping of the various overlapping IT systems. Yet Aviva is, by its own admission, where it needs to be to maintain the payout to investors in March. Analysts are split, though, on whether it will.

A cynic might think that a cut in March, by implication blamed on the previous management, gives scope for the payment to be built up again, with Mr Wilson taking the credit. "If I had to take a view, though, I would suggest the payment is safe, which would be good news for the price," The Times' Tempus says (Last IC rating: Buy, 10 Jan).

Despite the continuing unrest in the region, Hikma Pharmaceuticals is still happy to invest in the Middle East. Late in 2011 it bought the ninth-biggest pharmaceuticals company in Morocco; last year it bought into Sudan. It is now buying into Egypt.

The shares took a tumble last spring amid understandable political concerns but are now back to where they were, at which level the company is valued at a respectable £1.5bn. The bulls' argument is that its base is in Jordan and it employs locals in the markets where it operates, while there is pressure on governments in the region to raise spending on healthcare and more prosperous populations will be able to afford it for themselves. Nonetheless, Hikma hedged some of the risk with the purchase a couple of years ago, at a good price, of an American maker of injectable pharmaceuticals. The shares, after their recovery, sell on a chunky 15 times’ earnings, which does not suggest much upside, Tempus believes (Last IC rating: Sell, 16 Aug).

 

Business press headlines:

Marks & Spencer was thrown into chaos on Wednesday night after it rushed out worse than expected Christmas trading figures because they had been partially leaked, intensifying the scrutiny of chief executive Marc Bolland. M&S said that like-for-like sales in general merchandise, primarily clothing, fell by 3.8pc, worse than even the most pessimistic analysts had predicted. Like-for-like food sales rose 0.3 per cent, which was also below expectations. The trading update for the 13 weeks to December 29 was due to be issued on Thursday morning. However, M&S published the figures at just before 8pm on Wednesday and then hastily convened a management conference call after the like-for-like sales data was leaked to Sky News. [The Telegraph]

Apple is reportedly developing a budget version of the iPhone that could cost half as much as its latest handset, in an attempt to push back against arch-rival Samsung and increase sales in Asia. With competitors producing touch-screen devices for under $100 (£62) without subsidy, analysts say that to make an impact Apple would need to price its budget model at around $300, half the price of the latest iPhone. Scheduled for launch in the second half of this year, according to manufacturing sources, a second model would mark a major shift in strategy for Apple, which has produced just one handset a year since it first appeared in 2007. [The Guardian]

Chinese exports and imports rebounded strongly in December, pointing to solid economic growth both in China and abroad. Exports rose 14.1 per cent from a year earlier, the fastest in seven months and well above November’s 2.9 per cent pace. Imports increased 6 per cent in December from a year earlier after flatlining in November. Both outstripped most forecasts. China registered a $31.6bn trade surplus for the month, up from $19.6bn in November. For 2012 as a whole, China had a trade surplus of $231bn, more than 50 per cent larger than a year earlier, breaking a streak of three straight annual declines. [Financial Times]

The decline in North Sea oil and gas production will be halted temporarily after investment by the industry last year reached the highest level since the mid-Seventies, according to the energy consultancy Wood Mackenzie. The news will be a boost for the Chancellor, who has blamed paltry tax revenues in part on a slump in North Sea output.

The consultancy said that capital spending would remain high over the next three years as companies developed new oil and gasfields and increased production from existing operations. Analysts warned, though, that investment and output would start to tail off soon unless oil companies got better at making discoveries. Last year the sector made only two discoveries, despite drilling 66 wells - a 40 per cent increase on 2011. The two finds have 20 million barrels of oil in total reserves, almost a tenth of the oil found in 2011 and represent an all-time low. [The Times]

The FTSE 100 index reached its highest level since before the 2008 banking crisis on Wednesday, boosted by renewed optimism about the global economy. After two days of mild declines the January stock market rally resumed with the FTSE 100 rising 45.02 points to 6098.6, having earlier hit a high of 6112. That marked its highest close since 22 May 2008, well before the collapse of Lehman Brothers helped fuel the worldwide financial crisis. [The Guardian]

The Obama administration on Wednesday publicly signalled its growing concern about a possible British exit from the EU, just days before David Cameron sets out plans for a referendum on the issue. US diplomats have privately warned for months that Mr Cameron risked putting Britain on a path to exit with his plan to renegotiate Britain's EU membership terms and put the "new settlement" to a referendum. But Washington has now taken the unusual step of publicly briefing British journalists that it firmly believes the "special relationship" is best served by the UK remaining at the heart of Europe. [Financial Times]

Bank of Scotland veteran Alasdair Gardner is to take the reins of Lloyds' commercial banking arm in Scotland as it looks to grab a bigger slice of the SME market. Gardner, who joined the bank in 1987 and was previously head of energy at its corporate arm, will be responsible for all of the group's SME clients north of the Border, on top of his existing role as head of its Scottish mid-market business, which supports firms with a turnover of up to £750 million. [The Scotsman]