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Press headlines & tips: Aberdeen Asset Management, AMEC, Pennon

Find out which shares today's quality papers are tipping
February 15, 2013

There was confusion over Aberdeen Asset Management's apparent return to the acquisition trail yesterday morning. The company last bought a business, the asset management side of Royal Bank of Scotland, in 2010, and the chief executive Martin Gilbert was quoted here as recently as September as saying he preferred to use surplus cash to boost the dividend and buy back shares. Almost £130m in total takes a large chunk out of the £300m in the bank at the end of last year, which the market had expected to go back to investors.

Except that Artio comes with $136m in cash. The net figure for both, a little more than £40m, is less than Aberdeen's free cash-flow since the start of the year. These are small, infill purchases, not a return to the deal trail. Aberdeen's strong rise since last spring may count against any further outperformance over the sector as a whole. But the future for fund management looks to be with a handful of strong players, and Aberdeen will be one of them, The Times' Tempus writes (Last IC rating: Buy, 24 Jan).

Energy and mining services group AMEC produced a good set of full-year results yesterday, boosted by an increase in activity in the North Sea. However, the shares fell as investors fretted about prospects for 2013 and the company's margins, which fell to 8 per cent in 2012 from 9.2 per cent in 2011. Ian McHoul, AMEC's chief financial officer, said the lower margins were caused by the company taking on more procurement activity for some of its largest customers. When this effect was stripped out, margins were down by just 60 basis points instead of the headline fall of 120 basis points, Mr McHoul said. As well, AMEC's failure to announce another repurchase programme probably contributed to yesterday's sell-off.

The company has also been hurt by weak sentiment surrounding mining and the unconventional energy market. This is particularly true in terms of the oil sands market, which is expected to be very soft. The shares are trading on a December 2013 earnings multiple of 12.3, falling to 11 and yielding a prospective 3.4 per cent, rising to 3.7 per cent. The shares are now a hold, down from buy, The Telegraph's Questor says (Last IC rating: Buy, 14 Feb).

The trading statement from Pennon yesterday confirmed that South West Water was still trading strongly and should outperform the targets set for the current regulatory round, which ends in March 2015. As indeed it should. But while the prices of those recycled materials have seen some recovery from the lows of October and November, they are still running at below the levels seen in the summer.

Pennon was cautious about any further recovery, so earnings in the next financial year starting in April will be broadly similar to the current year. This suggests something in the £40m area for both years; one analyst was looking for more than £70m for 2014-15, but it looks too early for a proper view. Some analysts had been pencilling in a much sharper recovery next year, so estimates were duly cut. The fall in the price means the yield on the shares, traditionally the lowest in the sector, is now approaching the others, 4.4 per cent for the current year. This gives some support, but there could be more shocks to come. A mere "hold", then, The Times' Tempus concludes (Last IC rating: Sell, 29 Nov).

 

Business press headlines:

Morrisons appears to be the biggest winner from the horsemeat scandal after the supermarket chain reported an 18 per cent rise at its fresh meat counters in the wake of revelations over tainted food. The retailer said it had posted the double-digit increase since horse DNA was first identified in Tesco value beef burgers. It published the sales data as another study found 45 per cent of shoppers would avoid the meat aisles of chains found selling the contaminated meat. [The Guardian]

Soaring sales of jet engines for the Airbus A380 and Boeing 787 Dreamliner have propelled Rolls-Royce to new records - but its chief executive said that the group was still lagging behind its big American rivals. […] John Rishton, a former executive at Rolls' top airline customer British Airways and the chief executive of Rolls-Royce Holdings since 2011, said that aero-engine operating margins at 11.3 per cent, up from 9 per cent, were not good enough. "Our margins are not as good as some of our competitors', our costs are higher than the likes of General Electric and Pratt & Whitney," he said. "That enables our competitors to offer lower prices, it allows them to invest more in infrastructure and better training." [The Times]

Tullett Prebon has been drawn into the Libor scandal after an individual at the interdealer broker was implicated in conversations about rigging the yen Libor rate, the Financial Times has learnt. The broker is referred to anonymously in documents published by the Financial Services Authority in connection with rate-rigging settlements with both Royal Bank of Scotland and UBS, people familiar with the Libor probes said. [Financial Times]

The Treasury has been lambasted for conducting a series of expensive experiments with taxpayers' money while having little clue about the schemes' actual impact on the economy. In a damning assessment, the Public Accounts Committee singled out the oversight of the Bank of England's £375 billion quantitative easing scheme, which is backstopped by the Treasury. "The Treasury has not convinced us it understands either the risks it has taken on by indemnifying the Bank of England against losses on QE or the expected economic benefits," Margaret Hodge, the Labour MP who chairs the committee, said. [The Times]

US hedge fund investor George Soros has gained about $1bn since November betting against the yen, according to reports. The yen lost nearly 20 per cent against the dollar between November and early February, picking up speed as Japan's new government put pressure on the Bank of Japan to ease monetary policy more aggressively to defeat deflation. [The Telegraph]

Eurasian Natural Resources Corporation (ENRC), the FTSE 100 mining company that has been stung by a succession of corporate governance crises, has secretly sold a subsidiary to the nephew of one of the group's founders and major shareholders. Arif Shadiev, who was formerly part of ENRC's senior management team and whose uncle Patokh Chodiev is one of the group's controversial founding trio, acquired ENRC's railway maintenance business Zhol Zhondeushi for an undisclosed sum in May 2012. The mining company briefly referred to the deal in its first half results released in August, but chose not to disclose the identity of the buyer. [The Guardian]

Banks have been told by the Financial Services Authority that they should not try to leave the panel which sets Libor because they fear becoming embroiled in the growing scandal over rate rigging. A number of European banks including Rabobank and BNP Paribas are believed to have wanted to quit the 16-strong panel of banks which submits rates for Libor setting. The FSA is concerned that if banks pull out the stability of the market could be challenged. [The Independent]

Energy giant Iberdrola has pledged to plough more than 40 per cent of its total investment until 2014 into its UK operations as its ScottishPower business proved a star turn in resilient annual trading results. The Spanish multi-national's commitment came as ScottishPower Renewables also revealed yesterday that it has won planning permission from the Scottish Government to build a giant 96-turbine windfarm at Kilgallioch, south of Barrhill in south-west Scotland. Iberdrola said €4.4 billion (£3.8bn) would be invested in the UK over the three-year period, the lion's share of it in ScottishPower, but also other operations including those in the north-west of England and Wales. [The Scotsman]