FTSE100, who's getting demoted?

It's getting around to that time again when the FTSE100 and 250 play relegation and promotion.

Companies that look like dropping to the FTSE 250 include public sector outsourcer Serco, oil services company Wood Group and struggling miner ENRC. Of these, Wood Group is a little surprising as it wasn't that long ago that they were promoted from the 250. Mind you, the share price has been under pressure recently as results have failed to impress.

Going up from the FTSE250 will be Sports Direct International, a UK High Street retailing success during what has been a difficult time, now valued at a touch over £4 billion. They are expected to be joined by packaging company Mondi and a former Greece listed company Coca Cola Hellenic.

Valued at around a £billion, Partnership Assurance is tipped to join the FTSE250.

One AIM company that is hoping to join the FTSE250 this year is Quindell Portfolio (see - Quindell Portfolio, incredibly cheap or crash and burn), the share price of which has recovered from around 5p to currently around 17p after undergoing a short sell attack earlier this year. Doubt they are going to make it this time though, although their ambition is to be FTSE100 eventually.

AIM shares lifted by ISA buying

Well, it has been a few weeks since UK investors could put AIM shares in their tax free ISA's and it looks like this has provided a lift for AIM companies.

Aug 9 (Reuters) - London's beleaguered junior stock market is on track for its best weekly volumes in two months, fuelled by rule changes that prompted investors to snap up stocks, particularly in the beaten-down basic resources sector.

The lurch higher in volumes on AIM, a sub-market of the London Stock Exchange, followed implementation on Monday of a government plan to let people invest in small firms while avoiding tax to help drive economic recovery.

http://uk.reuters.com/article/2013/08/09/europe-stocks-aim-idUKL6N0G92IP20130809

That's a few weeks ago, but anyone following AIM shares cannot help but have noticed that the price on many seems to be up while in general the main market has been going through a will it, won't it, finally correct this summer mood.

In the last month the FTSE AIM all share is up over 4%, compared to -2.7% for the FTSE100 and  + 0.36% for the FTSE250.  Certainly some of the shares that I follow, which tend to be the more liquid AIM companies, do seem to have found a flurry of buying that has resulted in higher prices. This shouldn't be a one way ticket though as these shares still offer more volatility and can surprise big time if they announce something the market doesn't like.

FTSE250, worst performers, dominated by the mining sector

It's been pretty bad for quite some while for anyone invested in UK mining shares. Given that the main markets have been fairly bullish for some time, the sell off in mining stocks has been severe. Here are the worst performers.

1 year

African Barrick Gold  -72.45%
Hochschild Mining  -63.27%
Kazakhmys  -62.35%  Recently relegated from FTSE100.
Evraz  -61.04%  Recently relegated from FTSE100.
Centamin  -57.18%

6 Months

African Barrick Gold  -75.89%
Kazakhmys  -66.68%
Hochschild Mining  -65.84%
Evraz -60.74%
Polymetal International  -58.88%

Even in the last 30 day's with the market correction, mining shares have been hit hardest, only Man Group tops them.

Man Group  - 32.03%
Hochschild Mining  -31.82%
Evraz  -31.37%
Polymetal International  -26.18%
Centamin  -23.39%

Looking at the weekly UK mining sector chart suggests that there is still no let up or bottom in site as of yet. Not a good chart for mining investors.

Chart:

Brown N Group pleases the market, trend still looks bullish.

Brown N reported today figures that so far pleases the market. The company was first mentioned here in this post around June time last year, as talk at the time was of a potential takeover target for ASDA. Nothing came of that and the company is far more expensive today for any potential bidder than it was back then. It is up today around 4-5% so far on the back of its statement, so there is a lot of good news already in the price. The weekly chart clearly has momentum though and looks like it wants to go higher.

The arrow on the weekly chart below shows when it was first mentioned here, the breakout to the upside was just about to start. I think what the chart also shows is how once you get away from the noise of the shorter time frames on charts, the longer time frame periods look far smoother and like an ocean liner once under way any reverse takes a while to happen. The same tends to be true of these longer term trend moves. I would not want to bet against the company going higher from here until something changes on this longer time frame to justify it.

Chart:

The Week Ahead 2 - 22nd to 26th April 2013

The week ahead.

Data:

22nd April 

EU Consumer Confidence Indicator 

23rd April 

US House Price Index 
US New Homes Sales 

25th April 

UK GDP (Preliminary) 
US Bloomberg Consumer Confidence
US Continuing Claims   
US Initial Jobless Claims 

26th April 

US GDP (Advance)  
EU M3 Money Supply  
US Personal Consumption Expenditures, Income, Spending  
US U. of Michigan Confidence 

Company Announcements

24th April 

Finals - Home Retail Group. Been going well recently but the fundamentals are looking quite generous for a retailer. Will be interesting to see what effect if any the March/April winter weather has had on business. Note - my mistake this result is due next week.

Finals - Brown N Group. I first mentioned Brown in this post, Retailers Under The Cosh as one to watch in the FTSE250, potential takeover target and probably undervalued. Back then it was around 242p, today 420p as of Friday's close. Be interesting to see if it can maintain this momentum once it announces its finals. Didn't give anything away back in March as to what to expect.

25th April 

Interim Management statement - Playtech. Has done well lately out of doing business with William Hill and has also recently agreed a deal with Ladbrokes.

Markets and charts

Persimmon reports, another house builder seeing the benefits of Government intervention

One of the themes developing here is that it will be interesting to follow going forward the continued effect of Government and Central Bank intervention on the UK housing market and the benefit of this to UK quoted companies. I state the bullish case here and here and while I personally believe that UK house prices are too high and should fall if only a traditional free market response was in play, the reality is very different. With this in mind, this intervention can be monitored in part by keeping an eye on what the construction companies themselves are reporting.

This is what FTSE250 Persimmon had to say today.

We are encouraged by the announcements made in the Budget with respect to the Government's support both for customers wishing to enter the housing market and for those existing homeowners who aspire to move home. These "Help to Buy" measures include the provision of a Government backed 20% shared equity scheme commencing on 1 April 2013 to support customers who wish to buy a new build home. In addition, we look forward to working with the Government to develop the Government Mortgage Guarantee Scheme which is to be launched from 1 January 2014. We anticipate that this new Scheme will help mortgage lenders provide greater access to mortgage credit with smaller customer deposits at affordable interest rates.

As a result of these "Help to Buy" announcements customer enquiries registered on our Persimmon Homes and Charles Church web sites increased. Up until mid March enquiry levels had been running c.24% ahead of the prior year but following the announcement of the "Help to Buy" measures this improvement increased further to c.30%. We have experienced encouraging improvements in both visitor numbers and reservations at our developments over the last two weeks. Whilst it remains too early to measure any increase in legal completions as a result of the "Help to Buy" Scheme, we remain confident of the strength of underlying demand for new homes in the UK and that these measures will support an increase in the number of new homes delivered by the industry over the medium term.

http://www.digitallook.com/news/rns/20835756-10277/PSN-Interim_Management_Statement_html?ac=,&username=,

Whether we like it or not it would be foolish to overlook the likely impact of the intervention to come, there are few reasons to be bearish when it comes to housing stocks. One would have thought that only the badly managed ones will miss out.

Ladbrokes, losing the race

Ladbrokes today updated the market on its first quarter performance. A red flag could be seen before anything was read as the announcement stated "Early release of 1st quarter results".  Early release?  Could spell trouble and it did.

Ladbrokes had always planned for a reduction in group operating profit during the quarter due to known taxation and cost headwinds in UK Retail and the expected H2 weighting of growth in Digital revenues.

This reduction has however been exacerbated by softer trading than expected in Q1, particularly in the second part of the quarter, during which we saw a number of one off factors including; a significant reduction in profit from Cheltenham, lower revenues from high value gaming customers and a proportionately higher impact from horseracing cancellations.

When coupled with the revised 2013 outlook for our Digital business following our deal with Playtech we now expect group operating profit for the year to be at the bottom of the existing market range, in light of which the Q1 IMS has been released today.

http://www.digitallook.com/news/rns/20826495-10046/LAD-Early_Release_of_1st_Quarter_Results_html?ac=,&username=,

So not good and the share price, down around 8% today reflects that. However, the middle paragraph above makes you wonder why Ladbrokes felt the need to get their announcement in early, especially as rival William Hill is due to report on Friday.

FTSE250 Update - can it hold 13000?

Well, that was quite a day! The FTSE250 closed down around 275 points, one of the biggest day falls for some time. Little was spared, although a few mining stocks which have been out of favour for quite a while (see here) did manage to stay in the blue.

The chart below is the weekly for the 250 and it is suggesting that the current trend is at the very least having a rest, there are negative signs although it could still stay in an upward direction provided it doesn't fall much below 13000. Moving averages are still positive and we have support points below, the major one being around 12200. MACD however does look like it is about to go down, but it is still some way off zero, the crossover of which is usually the bearish signal. Bears would be jumping the gun by going short now on the basis if this chart. It's important to remember that the FTSE250 can move a long way very quickly, although bulls should start being worried if we have one or two more days like today close together. A lot to play for next week I think.

FTSE250 -Weekly

Kentz Corp comes up with the goods

Kentz Corp was previously mentioned in these posts and reported impressive numbers to the market today. Initially the price surged around 4% only to fall back as the day went on as the market decided that concerns about Cyprus and Italy put financial fears back on the agenda. Despite this the shares finished around 2% up. Still, Kentz did more than what the market was expected and still looks value compared to others in the sector.

Kentz Corporation reported a 32 per cent rise in annual pre-tax profits as the engineering and construction group scored new contracts and expanded its operations. 

Profit before tax for the year to the end of December 2012 came to $104.8m, up from $79.4m in 2011. 

Revenues jumped 6.0% year-on-year to $1.56bn, driven by the award of three technical support services contacts in Iraq. 

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 22% to $118.5m. 

"We have ended 2012 with confidence that our future outlook continues to be positive," said Chief Executive Officer Christian Brown. 

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=1168947&action=news&story_id=20781854

Kentz Corp announces "significant" Canadian contract

I mentioned Kentz Corp a few days ago in this post about Wood Group. The general feeling being that ahead of its results to be announced on 25th March it was being overlooked by the market. Certainly and barring no surprises in those results, it looks undervalued compared to other similar companies in the sector which have seen a significant rise in their share price after their result announcement and sometimes before with the market anticipating the good news. By comparison Kentz has been in the doldrums in the last few weeks, which is surprising for a share that is usually quite volatile, both up and down. Today it had an announcement of further good news ahead of those results.

Kentz Corp., the holding company of the Kentz engineering and construction group, has announced the award of a commissioning agreement with Imperial Oil Resources Ventures, covering services in the Athabasca oil sands in northern Alberta, Canada.

The contract, which is described as having a "significant" value, will run until 2016.

Under the agreement Kentz will provide management and discipline specialists to support electrical, instrumentation, mechanical, systems completions and start-up assistance. The contracts will be executed through Kentz's Technical Support Services (TSS) business unit.

Michael Murphy, the Chief Operating Officer of Technical Support Services for Kentz, said: "Kentz is delighted to be awarded an additional and significant contract by Imperial Oil.

http://www.digitallook.com/news/20759331/Kentz_unveils_significant_contract_in_Canada.html?username=&ac=

Still worth noting that date of 25th March to see what the company announces in its results.

 

FTSE250 Update

In trading there is a saying "climbing the wall of worry", well the FTSE250 looks like it is taking baby steps up a hill of worry. Worry in the sense that at some stage traders know that there has to be a correction and as the trend gets longer there is the risk of being caught in a bigger sell off. MACD looks to be weakening, but like the FTSE100, the 250 could fall quite a lot and still be bullish overall. Given that this current trend started in mid November we are now about 5 months in to a very stretched bull move that having hit 14,000, a nice round number, put on almost 2000 points in that time. No one should be surprised if we get a little pullback from here.

FTSE250 - Daily

Wood Group produces, but what will Kentz Corp announce?

Wood Group announced pretty good numbers this morning and the market has responded positively with a rise thus far of around 7.5%.

International energy services company Wood Group, posted a 20 per cent rise in revenue from continuing operations in its full year ended December 31st, boosted by growth in all three divisions. 

Revenue from continuing operations totalled $6,821.3m (2011: $5,666.8m), while earnings before interst, tax, and amortisation (EBITA) from continuing operations came in at $461.1m (2011: $341.6m), up 35%. The EBITA margin increased from 6.0% to 6.8%. 

Profit from continuing operations before tax and exceptional items was $362.7m (2011: $254.1m), up 43%, and adjusted diluted earnings per share were 85.2 cents (2011: 60.2 cents), up 42%. 

The total dividend for the year was up 26% at 17 cents per share (2011: 13.5 cents), following a final dividend payment of 11.3 cents, reflecting the company's "confidence in the longer term outlook for the group". 

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=48822&action=news&story_id=20737594

It is often the case that share price will jump on the announcement of a good result, especially if it comes in ahead of expectations. This can also be the start of a new trend as the share price goes higher. Often however, the market will anticipate the good news so to some degree it may well be priced in. Wood Group has been another steady riser, with dips along the way, for a few years. After today's price move there may be more to come, but are there others in the same sector who just might come in with decent numbers when they announce them and so far it isn't totally reflected in their share price?

Taylor Wimpey, impressive results, bull run to continue?

UK FTSE250 builder Taylor Wimpey produced an impressive result today, purely looking through the numbers it's difficult to see anything wrong and there are a lot of things going right for the company it would seem.

Here's some of the highlights;

44% increase in operating profit* to £228.8 million (2011: £159.3 million)

Completed 10,886 homes at an average selling price of £181k (2011: 10,180 homes at £171k)

Extensive strategic landbank of 100,340 plots (2011: 86,236)

Total order book value increased by 14% to £948 million at 31 December 2012 (2011: £835 million)

Customer satisfaction increased to 93.2% (2011: 92.1%)

Reduction in net debt to £59.0 million (31 December 2011: £116.9 million) with further improved debt efficiencies

http://www.digitallook.com/news/rns/20729318-10332/TW_-Results_for_the_year_ended_31_December_2012_html

What is interesting is that despite a largely stagnant UK housing market, quite a few of the listed FTSE construction companies have actually defied the bearish calls of why they should still be falling in price and actually done rather well in the last few years. Of course, like the banks lots of them fell off a cliff back in 2007-8, but since then many have recovered well often on the back of good numbers.

The company doesn't offer a great dividend at less then 1%, but in terms of price growth it has been steady as you go for the past couple of years.

Below is the impressive weekly chart showing the clear momentum.

FTSE250 Update - Good run stretched

FTSE250 has had a very good run of late, no one should be surprised if from here there is at least a decent pullback. More a reflection of the UK economy than the FTSE100, the 250 has defied bear hopes that it should be going the other way. No one should be surprised though that on the expectations of economic improvement to come, the FTSE250 is looking ahead.

Of the two charts, daily and weekly, the latter still looks the more positive. Daily MACD is suggesting that a pullback is on the cards, although it will be interesting to see if we get a period of divergence before price falls. MACD is still a long way from the zero line and the weekly chart gives more hope that this will be a pullback within the prevailing bullish trend. The 250 could lose 1500 points before hitting areas of major support at around 12100.

Charts:

FTSE - best January since 1989

So, the FTSE100 ends January with a performance of over 6% for the month, the best for over 20 years. The FTSE250 has also been going well, even though it reflects more closely the UK economy and much of the economic news for the last month or so hasn't been that hot to perhaps justify such a move. Nevertheless, history suggests that a good start in January is often a good sign for the rest of the year as originally mentioned in this post.

Here is some further evidence;

Fidelity Worldwide Investment has analysed the performance of the FTSE 100 since it started in 1984 and found that stock markets have risen in the first month of the year in 17 out of 29 years, with this year likely to make it 18 out of 30.

Most interesting for investors is the fact that in all but three of the 17 years equity markets have continued to grow in the 11 months following a positive January, suggesting that there really might be something to the January Effect. 14 out of 17 is an 82% success rate.

http://www.morningstar.co.uk/uk/news/105294/An-80-Chance-of-a-Positive-Market-in-2013.aspx

The markets will pause for breath at some stage and perhaps we are beginning to see that today, but increasingly evidence suggests that the home for all that new money that has been created may be the stock market going forward.

FTSE250, new year, new high, can it keep going?

The FTSE250 has been going well for some time, which may come as a surprise as it is considered an index that reflects more the UK economy than the FTSE100, which does much of its business overseas. Below is the weekly chart which shows the breakout from around the 12200 mark at the end of last year and it is now heading towards 13000.

Question is, can it maintain this impressive upward momentum? You would have thought that at some stage soon there has to be a pullback at the very least and given that there is now clear daylight from the old resistance at around 12200, it can retrace several hundred points and still be bullish as resistance becomes support. All things point to any volatility in the next few months coming from the US and the debt ceiling talks which will almost inevitably go to the wire. Other than that the bulls seem to have the upper hand at the moment, but putting new money into the market now is fraught with pullback fears that could come at any time.

FTSE250 Weekly

Buying shares in companies that have a good story.

Back during the heady days of the tech boom it seemed to be quite easy to buy into the latest blue sky company that in no time at all would take off. If a company wanted to boost its share price all it needed to do was say it was setting up a website offering, or going into some area of "blue sky" technology and often the share price would be off to the races.

Those days of more or less putting your money into anything that sounded good and getting a great return in a short space of time are probably long gone, but there is something to be said for buying into a company that has a good story behind it. Even if the fundamentals may be stretched in the present, the hope of delivering something big in the years to come and enjoying the returns of a ten bagger or more is something that most investors perhaps can only dream about.

In one sense this explains the popularity of smaller companies and the traditional "penny shares". In another, the chances of finding a big winner in the FTSE100 is remote and only slightly higher in the FTSE250. It's not that it can't be done, but in the big cap indices you are often looking for something that has collapsed in a market panic and crash, which is still fundamentally sound and then comes back big time.

Back in the financial crash days of 2008 I recall the collapse in price of FTSE100 silver and gold miner Fresnillo. It's IPO price was a little over 500p in 2008, but fell all the way to around 100p in the market crash, today it stands at a little under 1800p. Trouble is, few probably had the bottle to buy when it was 100p, even though it was about as cheap as it is ever likely to get.

So, leaving aside recovery stories in the big cap shares, it is the smaller companies that are more likely to deliver the investing equivalent of a lottery win, although your entry fee in buying the shares will be a lot higher. A few potential blue sky stories that I like in the smaller company sector are IDOX and Monitise which have been mentioned before. Others worth investigating are IQE, Blinkx and Vislink. All have a good story behind them, all have an element of risk and can be quite volatile, they could be big or could fade away if things don't work out. They may not be 10 baggers, but if the good story works out they could be priced a lot higher in a few years time.

ASOS, a short seller's nightmare and potential dream.

ASOS is one of those stock market stories where you wonder how does it manage to maintain stock market gravity with its share price? For those that don't know it is an online fashion retailer listed on AIM. It has just announced its latest Christmas trading which on the surface looks good.

British online fashion retailer Asos on Thursday posted a 41 per cent rise in sales over the Christmas period as reduced prices lured shoppers.

Asos, aimed at twenty-somethings, said global retail sales in December climbed to £78.1m year-on-year for the month ended December 31st.

Christmas sales were strongest in the group’s overseas market with a 57% increase in the US and 42% elsewhere, while UK sales jumped 34%.

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=38216&action=news&story_id=20629286

Its last pre-tax profit listed on DigitalLook was £13.24 million, in total for 2012 it was £47.59 million and expected to grow going forward, ASOS is a retailing success story. However, its share price stands at 2714p, P/E over 90 and a market cap of around £2.225 bllion! That's a market cap that would put it in the top 50 of the FTSE250.  Well known competitors Debenhams currently has a market cap around £1.300 billion, Brown N Group, just over £1 billion, ASOS is valued at just about the same as both of these put together. And although in a totally different retailing sector, Dixons is valued at £986 million.

Still, despite the valuation it has been a bit of a nightmare for anyone wanting to short it. There is lots of good news and sentiment in the price, but with that valuation it needs to continue to grow and impress, one bad result or perceived poor showing could see this one go south big time. For now however, you need pretty deep pockets to short this one with any confidence and if you are a bull, deep confidence to be sure it can keep going.

A good analysis can be found here;

http://tradingresearchpoint.co.uk/2013/01/18/asos-trading-statement-evil-knievil-and-the-bears-will-carry-on-getting-burned/

Christmas cheer for Home Retail Group and Dixons

I mentioned on the HMV post the other day the potential for other retailers, Home Retail Group and Dixons and that both would be reporting this week.

Dixons share price had been falling prior to its results, it had been going well for some time and there was a case to be made for saying that the good news was in the price, but a pre-results rumour of a possible profit warning also didn't help. Home Retail Group on the other hand didn't seem to have any questions raised against it. Today's results and market reaction suggest that the market likes it more than Dixons, but both have actually done well and defied the consumer gloom and bad news story on the High Street.

First, Home Retail Group.

As a result of good operational management and cash generation over the peak trading period, we now expect Group benchmark profit before tax for this financial year to be about £10m ahead of the current market consensus of £73m and the year end cash balance to be in excess of £300m.

http://www.digitallook.com/news/rns/20628399-198512/HOME-Interim_Management_Statement_html

HMV, a comedy of errors

Well, the inevitable has finally happened for HMV, after a long battle to fight off its decline and after another bad Christmas, the decision to go into administration does not come as a surprise.

Music and DVD chain HMV is to appoint an administrator, making it the latest casualty on the High Street and putting about 4,350 jobs at risk.

Deloitte will keep HMV's 239 stores in the UK and the Republic of Ireland open while it assesses the prospects for the business and seeks potential buyers.

Trading in HMV shares on the London Stock Exchange has been suspended, HMV said in a statement.

http://www.bbc.co.uk/news/business-21021073

Since coming to the stock market back in 2002 it has been almost a comedy of errors watching the company, the last five years being particularly painful for it as everything it did seemed to backfire. It became one of the favorites for short sellers who no doubt will now argue that they were right all along. Probably so, but for HMV listing on the stock market was probably the wrong decision in the first place. Once the decline set in, the pressures from the market would speed everything up. The need to do something is far greater when you have the market breathing down your neck and institutional shareholders to please.

Part of this comedy of errors was the decision back in 2005 to turn down a takeover bid.