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HB Markets Breakfast Today including: Aggreko and HMV Group
The markets
Market opening: Markets may open lower today following ECB's report on the increased riskiness of banks.
New York: The S&P 500 closed 1.2% lower yesterday amid concern that Eurozone may not be able to procure the targeted €200bn for the IMF, as the US and the UK have backed out.
Asia: Asian markets steadied after yesterday's fall despite Eurozone's inability to raise enough funds for the IMF. The Nikkei closed +0.5%, while the Hang Seng was trading at +0.3% at 7.00 am UK time.
Continental Europe: Markets were mixed yesterday as investors awaited the decision on bilateral loans to the IMF. Germany's DAX 30 lost 0.5% and France's CAC-40 closed almost flat (+0.06%).
UK small caps: The FTSE AIM All-Share closed 0.5% lower yesterday.
Today's news
€200bn boost to IMF dicey after Britain rejects contribution call
Eurozone leaders agreed in yesterday's teleconference to boost the IMF's resources by €150bn. Sweden, Poland, Denmark and Czech Republic supported the plan. However, the target to raise an additional €50bn from EU allies may not be achieved as the UK backed out. The US government had already expressed its inability to increase the bilateral loan to the IMF, as the US Congress will not approve such a move. EU leaders also need parliamentary approval.
Financial stability weakened in H2 2011 - ECB
Pressure on the banking system increased in H2 2011 as the contagion of the debt crisis multiplied, the European Central Bank (ECB) said in its bi-annual financial stability report. The ECB criticised the slow political response to the crisis, adding that the risk of a simultaneous collapse of two large banks has now reached the highest level since such riskiness was first measured four years ago.
Breakfast Today is taking a holiday
Breakfast Today is taking a break for the festive season with our last issue of this year being published on 21st December. We will be back on 4th January 2012. We wish our readers a Happy Christmas and a prosperous New Year!
Company News:
Aggreko, the provider of temporary power and temperature control solutions, released a pre-close trading update yesterday for FY 2011 ending 31st December 2011. Underlying revenues are expected to increase by at least 20% y-o-y resulting in an approximate 25% boost to trading profits. Reported revenues are expected to touch £1.4bn implying a 13% annual increase, while operating profits may be marginally ahead of expectation and rise by about 5% to reach £324m. The company invested £395m in fleet expansion resulting in the net debt increasing to about £400m from £270m in FY 2010. The international power projects division could grow about 24% q-o-q and y-o-y in Q4 2011 and FY 2011 respectively, while growth momentum in the local business continues to be strong. 2012 outlook remained positive, with the company expecting significant gains from the contract to supply temporary power for the London Olympics. The management foresees difficult trading condition in H2 2012, when the business is likely to feel the pinch of a probable recession. Separately, the company announced winning a contract from the Bangladesh Power Development Board to convert the 145 MW diesel-fuelled temporary power plant at Ghorashal to one that runs on natural gas, extending the term of the contract to 2015 and increasing its value by US$100m.
Our view: The positive results from the company were widely expected after the management said they expected FY 2011 profits to touch £320m during the announcement of Q3 2011 results in October. In our opinion the company has an attractive growth profile, but is currently fairly priced at a P/E ratio of 23.2x vs. 21.9x for peers. We issue a Hold recommendation for the stock.
HMV (LON:HMV)
HMV announced interim results for H1 201-12 ended 29th October 2011 yesterday. Revenues declined 17.6% y-o-y to £364.9m despite a slight improvement in like-for-like sales to -11.6% following a 15.5% fall in H1 2010-11. Attendance at live events improved by 20% on a like-for-like basis and by 30% on a total basis, number of events increased by 5% and spends per person increased by 10%, but like-for-like sales were down 1.5%. Sales at the HMV retail division fell by 19.4% on a reported basis and by 11.9% on a like-for-like basis. A management acknowledged that though the company had access to adequate financing the difficult trading conditions cast a "significant doubt" on the company's ability to continue operations.
Our view: Changing technology is shifting consumers' approach to entertainment. The company is restructuring its business to assimilate these structural changes to its core market by devoting floor space to products like MP3 players, tablet computers and headphones, but faces stiff competition from online vendors. A failure to move with the market in-time and extend its brand to the online world, along with unsuccessful attempts to get back in the game have left the company with high debt levels and very limited growth prospects.
Economic News:
UK Rightmove House Prices
House prices dropped 2.7% m-o-m and increased 1.5% y-o-y in December; online real estate agency Rightmove reported Monday. Prices had dropped 3.1% m-o-m and increased 1.2% y-o-y in November. The Agency expects the house prices to rise by 2% in 2012 following the 1.5% increase in 2011 as scarcity of sellers supports prices.
Eurozone Current account
Eurozone's current account swung back to a deficit of €7.5bn in October following an upwardly revised €2.2bn surplus in September (€0.5bn reported earlier), the European Central Bank reported Monday. A €2.6bn goods account surplus in September turned into a €4.4bn deficit in October, whilst the surplus in services declined to €5bn from €6.6bn in September. Domestic investments in debt and equity declined by €28.8bn and by €6.4bn respectively. The current account deficit for the twelve months to October widened to €58.7bn from €29.5bn recorded in the corresponding period of the last year.
