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Press headlines & tips: CareTech, Premier Farnell, Standard Chartered

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

Tempus in The Times writes that one company that has had a difficult couple of years is CareTech Holdings, the AIM-quoted provider of specialist care homes.

There was a bizarre row over a policy of capitalising the salaries of members of staff seeking acquisitions. At least one bid and one management buy-out never materialised.

Analysts are worried that, in the wake of the collapse of Southern Cross, the company would come under pressure if fees from the public sector started to decline.

This never happened. The main business, housing adults with learning disabilities, is a long-term one, unlike the care of older people. Meanwhile, CareTech has been moving into other areas such as residential services for the young and fostering, which are less capital intensive.

In the year to the end of September the company grew revenues by 4.5 per cent but this came from the addition of new capacity with fees pretty well static. The other metric to look out for, occupancy rates, remained comfortably over 90 per cent. CareTech grew underlying pre-tax profit by 5 per cent too, to £16.7m. As a measure of confidence a final dividend of 4.29p makes a total up more than 8 per cent to 6.5p.

The shares are on a little more than six times this year's earnings, which looks low for the sector. But they have risen almost 40 per cent since May, which suggests that much of the good news may already be in the price. 'Hold' (Last IC rating: Hold, 6 Dec).

Tempus writes that when it last looked at Premier Farnell, in the autumn, it suggested that the shares were a straight play on an early economic recovery, but that this recovery might be a way off. Three months later, much the same is true, alas.

Premier's revenues were down by 1.6 per cent in the third quarter of its financial year, which ended in October. But this translated into a 10.4 per cent fall in operating profits, to £22m. Sales rose by 0.4 per cent in August, but September and October were disappointing, with sales on the slide again. November, for which figures are just out, showed a slower rate of decline than October, taking out the effects of Storm Sandy, but sales were still off 3.2 per cent.

Premier Farnell shares were up 5.5p at 182.75p on the news. Analysts were again cutting their estimates for the year but there was a sense among some that this might be the last downgrade, and that the market might have bottomed out. There are some signs supporting this in industry data coming out of the US. But because Premier and its rivals deliver mainly overnight, there is no clear indicator of what is to come and, frankly, no one knows.

The shares have traded in a narrow range since May and sell on about 13 times this year's earnings. They have the support of a decent 5.5 per cent yield and seem unlikely to fall much further, unless we are in even more trouble than anyone thinks. But Tempus is not convinced the omens are yet sufficiently favourable to justify a 'buy' (Last IC rating: Hold, 13 Sept).

Questor in The Telegraph says that it looks like Standard Chartered's problems with US regulators will soon be over and it will be back to business as usual. The bank is set to give another $330m (£205m) to US authorities - on top of the $340m fine already paid.

The problems related to subsidiaries engaged in "grave violations of law and regulation" in their dealings with Iran. However, a line is likely to be drawn under these events by the end of the year.

There has been a sharp slowdown in emerging markets of late with Brazil, for example, on track for its worst year of growth in more than a decade. GDP growth is also slowing in India. But Richard Meddings, the group's Finance Director, was upbeat yesterday, confirming expectations that the group would deliver its 10th consecutive year of profit growth. The bank is expected to increase full-year profit by a "high single-digit rate".

Questor has had a hold rating on the shares, but the fact that its Iran sanctions settlement is close at hand is very positive. Indeed, it could be argued that Standard Chartered has got off lightly in this case. Next year is likely to be tough, but as the year progresses a pick-up is likely in the bank's markets. The new Chinese leadership is likely to want to keep growth above 7 per cent - and this should help Hong Kong.

Trading on a 2013 earnings multiple of 10.4 and yielding 3.6 per cent, Standard Chartered shares are a 'buy' (Last IC rating: Sell, 8 Aug).

 

Business press headlines:

Starbucks has taken the 'unprecedented' step of pledging to pay £20m corporation tax, even if it makes no profit - only for the move to appear to backfire and fuel the fiasco surrounding its UK operation. In a bid to end the pressure on the coffee chain, the US giant dramatically broke off talks with HM Revenue & Customs (HMRC) to offer to "pay or pre-pay somewhere in the range of £10m in each of the next two years". Starbucks has paid just £8.5m corporation tax in 14 years, despite UK sales of £3bn pounds - a tax rate of less than 1 per cent. [The Telegraph]

Britain's former top financial watchdog is in talks about taking a senior role at Barclays, raising fresh questions about the revolving door between regulators and the big banks. Hector Sants is understood to be considering accepting a senior compliance and regulatory job at the bank he once believed was too aggressive. The former investment banker stepped down as chief executive of the Financial Services Authority in June, after guiding it through five years of turmoil in the wake of the banking crisis. One of the FSA's last acts under his leadership was to impose a record £59.5 million fine against Barclays for rigging Libor, the key inter-bank interest rate. [The Times]

One of the banks being investigated over the Libor lending rate scandal was behind some of the unusual deals that triggered a separate inquiry into suspected attempts to manipulate the wholesale gas price. US investment bank Citigroup has confirmed that traders in its London office made two of a series of six gas deals that prompted inquiries by the Financial Services Authority and the energy watchdog, Ofgem. The sales were made around the "window" in which so-called price reporting agencies set the benchmark price for gas. In both deals, late in the afternoon of 28 September, Citigroup sold gas at 58.00p per therm - substantially below the price of other deals earlier in the day and later. [The Guardian]

Netflix has said securities regulators plan to take action against the company because of a Facebook post by chief executive Reed Hastings that allegedly violated public disclosure rules. "We remain optimistic this can be cleared up quickly through the SEC's review process," said Hastings, in the letter the company submitted alongside a regulatory filing announcing the receipt of a "Wells Notice" from US Securities and Exchange Commission staff. The notice informed Netflix that the SEC intends to bring a civil action against the company because of comments Hastings made on Facebook in July announcing that members of the online video streaming service were watching more than one billion hours of video a month. Hastings said on Thursday that he did not believe the Facebook posting was "material" information, Reuters reported. [The Telegraph]

Better Capital, the private equity firm run by veteran investor John Moulton, is in rescue talks to salvage the coal mining operations of ATH Resources. Doncaster-based ATH, which operates all four of its open cast pits in Scotland, fell into administration on Wednesday night, although its subsidiary, Aardvark TMC, continues to trade. But Better Capital yesterday revealed that it is in talks with all the company's "stakeholders" - including customers, local councils and staff - to find a way to keep Aardvark trading. [The Scotsman]

Asian shares rose to an eight-month high, encouraged by a bigger-than-expected fall in weekly US jobless claims ahead of non-farm payrolls data later on Friday. The MSCI Asia Pacific index gained 0.1 per cent with Japan's Nikkei 225 Stock Average up 0.2 per cent, South Korea's Kospi Composite index 0.6 per cent higher and Australia's S&P/ASX 200 index rising 0.8 per cent to a six-week high. Hong Kong's Hang Seng index and the Shanghai Composite index each added 0.3 per cent. Investors are awaiting the key monthly US jobs report for further clues on the US economic outlook. Non-farm payrolls in November are expected to have risen just 93,000, compared with October's 171,000 job gain, due to the impact of superstorm Sandy on US economic activity. [Financial Times]

Fresh curbs on welfare spending for those hit hardest by George Osborne's autumn statement will be needed to spare Whitehall departments from the full impact of £27bn in savings needed in the next phase of the government's eight-year austerity programme, Britain's leading experts on the public finances have warned. The Institute for Fiscal Studies said that without further savings - either from benefits or tax increases - some areas of the public sector would be faced with "inconceivable cuts" in the next parliament. [The Guardian]

A US electronics company is creating 130 jobs after announcing plans for a second Scottish factory in a £9 million expansion. Plexus is moving its Livingston design centre to larger premises at Bathgate where it will also open a manufacturing facility to complement an existing one in Kelso. Work is expected to begin later this year and the site is expected to be operational by February. [The Scotsman]