Market Report: Make-or-break time for Carphone Warehouse
Wednesday 20 December 2006
You don't have to be a business school guru to tell that the next six months are going to be crucial for Carphone Warehouse, 2p worse at 308.25p. Free broadband and the acquisition of AOL UK have created a make-or-break situation for the group, probably more crucial to its future than its first foray outside retail, the 2003 launch of TalkTalk.
Not everyone is convinced it will be a brave new dawn for the company. The US investment bank Citigroup released revised forecasts yesterday to include the AOL acquisition, and reiterated its "sell" recommendation on the back of the new numbers. The broker highlighted increased net debt of approximately £610m, from £306m, increasing interest payments. It also believes its 235p price target assumes "near perfect" execution of the group's broadband expansion - generating 1.8 million subscribers, successfully rolling out 1,000 unbundled local exchanges and maintaining average revenue per user. In what is becoming an increasingly crowded market place, Citigroup believes that the current price discounts too many risks.
In the blue chips, a mild early morning fall in the copper price spooked some mining investors, although the price rallied by early afternoon to remain flat. Vedanta Resources shed 65p in early deals before closing 24p worse at 1,199p, although Kazakhmys failed to recover and closed 31p worse at 1,138p. Elsewhere in the miners, Swiss broker UBS cut its price target for Lonmin from 3,700p to 3,550p but retained its "buy" advice. Lonmin fell 51p to close at 3,037p.
Centrica is likely to be high on the list of possible takeover targets for 2007. It has been almost a year since Russian giant Gazprom let the cat out of the bag that it was looking at making a bid, but since then there has been little for traders to get their teeth into. But the acquisition of Norsk Hydro's energy business by Norwegian national oil group Statoil this week has got traders excited and investors are speculating that a Norwegian bid for Centrica will be more palatable to the market than a Russian offer. Shares in Centrica closed 7p better at 352.25p, a new all-time closing high.
Traders continued to take some profits off the table in the run-up to Christmas, the FTSE 100 closing 43.5 worse at 6,203.9.
Burren Energy shed 9.5p to 902.5p after a disappointing drilling report. It has been a poor second half of the year for mid-cap oil exploration and production stocks, after the collapse of takeover talks at Premier Oil, 10p weaker at 1,241p, and poor drilling results from Soco International, down 29p to 1,411p. The fall in the price of oil has not helped but investors will be hoping for better newsflow in the first half of 2007.
Oil services are enjoying a far stronger end to the year. Wood Group, 14.75p firmer at 259p, told investors that full-year pre-tax earnings will rise by 45 per cent to $210m. Broker Teather & Greenwood upped its price target to 262p, while Credit Suisse reiterated its 305p target. Rival Abbot Group was also in demand, 3.75p better at 312p.
Bid talk has driven shares in soft drinks group Britvic to new highs amid reports that private equity group Permira is considering an offer for the group. Permira upped its stake in Britvic from 2.8 per cent to 14 per cent via its Snowdon Acquisitions vehicle, although reports that Permira bought a stake from AXA seem to be untrue. Britvic shares climbed 18p to 281p, although with a bid expected to value the shares at 280p there may not be much upside left.
Proteome Sciences shed 0.75p to 62p but the word is there could be more good news to come after Monday's patent decision by the European Patent Office. The rumours in the market are that a major commercialisation deal could be announced before the end of the year.
Shareholders in SecureDesign have had a roller-coaster ride since the company listed in July at 47p. The shares rocketed soon after to hit an intra-day high of 250p on 31 August. Since then, the shares have been trashed and yesterday's announcement, that a proposed deal to become the exclusive distributor of FingerPrint Card's products in Japan has been terminated, encouraged more selling. The shares hit a new closing low of 52.5p, down 12.5p.
Mining investors will have their eyes on South African group Petmin when it begins trading on AIM today. Although the company has raised only £3.6m via a placing, organised by broker Numis Securities, at 9p per share, thanks to its Johannesburg listing the company will have a market capitalisation of more than £43m.
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