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Press headlines & tips: Icap, Dairy Crest, Centrica

Find out which shares today's quality papers are tipping
February 7, 2013

Tempus in The Times yesterday pointed out that one of his picks for 2013, Lamprell, was up 53 per cent so far and suggested investors might take some profits (Last IC rating: Sell, 29 Aug). A second, Thomas Cook, is up 78 per cent so far, after yesterday's update. For him the best option for nervous investors may be that 78 per cent in five weeks might be regarded as enough. He is not sure, though, that Thomas Cook shares might not have farther to run, even if some sort of equity issue looks inevitable (Last IC rating: Hold, 28 Nov).

One of the odder facts about Icap, the biggest inter-dealer broker (IDB), is that it regularly forecasts to the market what future profits should look like. But its fortunes wax and wane from month to month, and forward visibility of earnings is non-existent. Hanging over the company is its involvement in the Libor scandal. It is under investigation by the Financial Services Authority, one reason why the ratings agency Moody's recently put the company's debt on review for a possible downgrade. If we have learnt one thing over the past five years, it is that the ratings agencies are always well behind the curve Icap, most expect, will scrape through with a fine of perhaps £30m. Some analysts have wondered, probably wrongly, if the fallout might call into risk the dividend, which at least provides the support of a 6 per cent-plus yield.

Icap offers investors a straight choice. If you are an optimist and think the markets will remain favourable, then the shares, down 4p at 352.75p, are attractive on an earnings multiple of about 10.5. If, like me, you take a more cautious view until Libor is sorted out, then avoid, writes The Times' Tempus (Last IC rating: Sell, 14 Nov).

Given that a fair number of acquisitions, history tells us, destroy shareholder value, Dairy Crest is to be commended for refusing to be too quick to spend the £336m received on the sale of its French subsidiary, St Hubert, in the summer. Analysts expressed some disappointment that the cash would be used for something as mundane as paying off debt. Its s four core brands saw third-quarter sales up 5 per cent, well behind the 11 per cent seen in the first half but impressive enough in these markets, competing with a very strong third quarter last time. Sales should continue to grow at the same rate for the rest of the financial year. The shares, off 14p at 408p, sell on 13 times earnings and yield a healthy 5 per cent. No reason why they should outperform for now, but a strong hold, Tempus in The Times writes (Last IC rating: Buy, 8 Nov).

To the surprise of absolutely no one who has been watching the company, Centrica pulled out of plans to build new nuclear power stations in the UK earlier this week. So what are the options? Centrica's success is based partly on its model of owning energy-producing assets as well as distribution systems. It is likely to continue to invest in UK North Sea oil and gas, but it is also possible that further upstream assets will be bought in the US to complement its Direct Energy business. The balance sheet is strong and cash flow is impressive.

The main danger is regulatory risk to Centrica's British Gas residential distribution business. Labour is calling for the abolition of Ofgem and a new, tougher regulatory regime. However, profit margins for this business are pretty low (in the region of 6 per cent) so, ultimately, Questor thinks the company has little to fear. However, broker Seymour Pierce has calculated that for each percentage point reduction in the profit margin, Centrica's earnings would be hit by 8 percentage points. Trading on a December 2013 earnings multiple of 12.4 and falling to 11.5, the shares are a hold, down from buy, after recent gains, The Telegraph's Questor team says (Last IC rating: Buy, 5 Feb).

 

Business press headlines:

More than 1,000 investment bankers at Barclays have been told they will not receive up-front cash bonuses this year. Managing directors in the group's investment banking arm were informed that their 2012 bonuses would be deferred for at least a year. The move is part of Antony Jenkins' attempts to rebuild the bank's image, which has been tarnished by Libor and mis-selling scandals. [The Independent]

Europe's leaders are poised this morning to cut the European Union's budget for the first time in its 56 year history following a major victory for David Cameron. Proposals tabled early on Friday morning for Brussels budgets for the period 2014 to 2020 would slash the EU's spending by £30 billion between 2014 and 2020 compared to current levels of spending. The historic cuts package tabled by Herman Van Rompuy, the EU president, after a bitter battle between the Prime Minister and Francois Hollande, the French President, could save the British taxpayer up to £500 million a year. [The Telegraph]

Chinese exports and imports rose strongly in January, pointing towards solid growth both in China and abroad at the start of 2013. Exports increased 25 per cent from a year earlier, the fastest pace since April 2011 and up from 14.1 per cent in December. Imports increased 28.8 per cent, more than four-times December's 6 per cent rise. The boom in imports trimmed China's trade surplus to $29.2bn in January from $31.6bn a month earlier. Analysts called for caution in interpreting the figures because next week's Chinese New Year holiday will have caused significant distortions, with companies trying to push as much business as possible into January before work is halted. [Financial Times]

The era of the Tesco or Sainsbury Post Office could be upon us. The state-owned Post Office yesterday announced plans to close dozens of main branches and instead move their operation into a local high street supermarket or newsagent. After already moving hundreds of its smaller local branches into outlets run by the likes of WH Smith or the Co-op, the Post Office wants to repeat the process with 70 so-called Crown post offices, which are now in search of a "retail partner". The plan was immediately criticised by postal workers. Their union, the CWU, said that 700 jobs were under threat and feared the move was the thin end of the wedge of a radically different post office service in the future. [The Times]

The US's top transportation safety investigator has questioned the "assumptions" regulators used before clearing Boeing's use of controversial lithium-ion batteries on its grounded 787 Dreamliner. The national transportation safety board (NTSB) has been investigating the battery of a Japan Airlines 787 that caught fire at Boston's Logan airport in January. NTSB chairwoman Deborah Hersman told reporters on Thursday that tests showed a failure in a single cell of the battery spread to the rest of the battery in a way unanticipated by Boeing. Before the Dreamliner's approval for flight the company had discounted such an event, Hersman said. [The Guardian]

HMV's administrator Deloitte is set to axe more than 900 jobs by closing 66 stores over the coming two months. The shops identified for closure include those in Wood Green, Wandsworth and Bayswater in London, and Burton-upon-Trent, Edinburgh, Wakefield, Wigan, Falkirk, Huddersfield and Chesterfield. HMV went into administration last month, putting more than 4,000 jobs at risk, although it continues to trade all its 220 stores. The coming closures will see 930 jobs cut. [The Independent]