Market Report: Ashtead gains on back of cost base and US strength
Friday 17 December 2010
Hopes that a reduction in costs during the downturn will help them in the recovery boosted the equipment rental companies yesterday and resulted in Ashtead bagging the top spot on the FTSE 250.
The hire group was driven up 8.8p to 166.1p after Singer Capital Markets released a bullish note on the sector in which its analyst Andy Murphy predicted an "elongated upgrade cycle".
Choosing Ashtead as one of his preferred companies, Mr Murphy said he has "considerable confidence that [it] will deliver profits ahead of expectations." One of his reasons for being so positive, he said, was the group's strong position in the US plus the fact that its "reshaped cost base implies a profitable operation in depressed markets".
The analyst also singled out Lavendon for special praise, describing it as "well set to benefit from a number of positive trends", and the small-cap firm added 6p to close on 113.5p.
Early signs were promising on the FTSE 100, which would have registered a two-and-a-half year high if it had held on to its early gains. However negative initial trading on Wall Street and worries over the eurozone led it to drop 1.06 points to 5,881.12.
City Index's Joshua Raymond noted that investors were scaling down "the amount of risky asset classes they held in their portfolios" in what he described as preparation "for an expected leave of absence from the markets, with traders starting to think more about their Christmas shopping than stock investment".
The news that BP is being sued by the US government over the Gulf of Mexico oil spill hit the oil giant yesterday, with many worried that it could significantly increase the financial cost of the disaster to the company.
Evolution Securities' analysts said the announcement was "hardly a surprise" and that it expected a fine "at the lower end of the range" of $4bn to $5bn. Still, despite the broker's calming words, BP dropped 6.55p to close on 470p.
One of the major risers of the day was GKN, which was once again being gossiped about as a potential takeover target. Despite the talk being rather vague, with no names or prices being mentioned, the engineering group gained 6.3p to 213.8p.
There was also the return of speculation around Cobham, which was doing the rounds last week, but it failed to catch alight and the defence company edged down 0.5p on 205.5p.
Serco topped the blue-chip index, making 23.5p to 597p after its trading update. The outsourcer said it is still set to meet its guidance for 2010, which includes "strong organic revenue growth", although Panmure Gordon's Andy Brown kept it as a "sell".
Burberry was looking smart, rising 16p to 3,215p, despite having its credentials as a takeover target knocked. The upmarket clothing retailer is a regular subject of rumours over a potential approach, with LVMH, Coach and PPR a few of the names recently mentioned as taking a look.
However, H2O Markets' Daniel Harris said its market capitalisation of nearly £5bn "makes it too expensive for a predator". Still, Mr Harris recommended it as a "buy", thanks in part to the ongoing boost from the continued speculation as well as Burberry's plans for expansion.
On the the mid-tier index SportsDirect was going strong, adding 4.5p to 150.5p. With recent talk over how adverse weather conditions have hit the retail sector, the sportswear company's first-half results rather went against the grain. The group said that instead of putting off shoppers, the recent cold snap had actually resulted in a boost of sales of its winter products.
The rest of the figures were generally good, with pretax underlying profit increasing nearly £29m from the previous year as it reached £100.7m, and Seymour Pierce's Freddie George kept it as a "buy".
There were plenty of questions floating around Kesa Electricals, after the revelation that Knight Vinke hadincreased its stake in the owner of the Comet chain of electrical stores to 11.09 per cent.
Speculation has been rife over the activist investor's intentions, revolving around whether a break-up of Kesa could be on the cards. One trader said that "everyone is waiting for anannouncement" as Kesa failed to move much either way, making a slight shift up of 0.8p to 166.7p.
On the Alternative Investment Market, there was a drop of nearly 18 per cent for Cohort, as the defence technology company shed 16p to 73.5p. The slide was prompted by the group'sinterim results, in which it warned that full-year pre-tax profits will fail to reach expectations.
Also down after releasing interims was Provexis, which develops dietary supplements among a number of other products. It was certainly not in fighting fit shape yesterday, dipping 0.53p to 4.15p as it revealed that its pre-tax losses had nearly doubled. The group blamed the fall on the fact that it has dramatically increased the amount it spends on research and development.
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