Market Report: BAE lifted by hopes more deals are in air
Wednesday 19 June 2013
Jet makers were yesterday fighting to show what lucrative contracts they are close to securing at the Paris Air Show, and punters flew in to BAE Systems on hopes it is close to agreeing long-awaited Middle Eastern deals.
Gossip circling the show suggested BAE is close to clinching a contract to supply 72 Eurofighter Typhoon jets to Saudi Arabia. The talks to agree a price have been going on for two years, but it appears they are edging closer to touchdown. An agreement would mean the company can complete its £1bn share buyback programme, launched earlier this year.
A deal with the United Arab Emirates, almost lost to French rival Dassault Aviation's Rafale jets last year, also looks to be on track.
The biennial show – this year's is the 50th – is a hubbub of deal-doing and networking, with many hoping to grab a piece of the US military's spend. It is said to be upbeat and busier than usual this time, but American budget cuts mean there are fewer deals to go around, and analysts think BAE's growth will continue to lie in the Gulf.
Bank of America Merrill Lynch said it "does not see opportunities for consolidation in the US". It added that BAE's chief executive, Ian King, said his company has Eurofighter export opportunities in Saudi, Malaysia and Oman. The bank also said BAE expects its deals with the UAE to open the door in Qatar.
Bank of America also said: "The Eurofighter consortium is getting better on the way it is doing business with new targets and approach to export contracts but work still needs to be done."
BAE's management also highlighted export opportunities in Canada, Denmark, Iraq and Poland but Bank of America's experts said the "timing appears uncertain." The shares climbed 8.4p to 395.7p.
On the benchmark FTSE 100 index, the focus was still on what US Federal Reserve chairman Ben Bernanke will say at today's Federal Open Market Committee meeting. There have been rumours he may announce a tapering off of America's asset purchasing.
But even with reports of changes to the US monetary stimulus programme, the Footsie stayed in positive territory, climbing 43.72 points to 6,374.21. The top riser was Premier Inn and Costa Coffee operator Whitbread, which served up a 106p rise to 3,031p – reaching an all-time high on strong sales growth.
Temporary power supplier Aggreko fell 39p to 1,752p after saying it expected flat first-half profits.
A bidding war is about to break out for German telecoms group Kabel Deutschland after it emerged US cable television empire Liberty Global has made a rival bid, believed to be worth £6.4bn, to an already-rejected approach from Vodafone. Liberty Global, headed by John Malone, agreed to buy British cable company Virgin Media for $16bn (£10bn) in February. Vodafone dialled up a 1.65p rise to 184.35p.
Language software group SDL failed to translate its services into success, and issued a profit warning yesterday. The mid-tier translation technology expert has already lost 25 per cent of its value this year, and has been trying to recover by launching a new sales and marketing plan. However, it admitted sales of licences for its technology and language services stalled in the first half.
The alert saw its shares fall 115.5p to 271p. However, some analysts interpreted the plunge as a good reason to start buying the stock. Scribblers at Numis raised their rating to buy from hold with a 390p price target and said: "For investors prepared to risk another warning, we think there is now good upside."
Numis reckons SDL's way out of trouble will be cost-cutting. It predicted there could be "probably £10m to £20m of 'easy wins' in the cost base that could take us back to £30m-plus of profit before tax". Investec analysts also said they were fans, and rated the shares a buy with a 320p target, adding: "Importantly, the pipeline suggests a pick-up in the second half of the year."
AIM-listed African Minerals, founded by controversial businessman Frank Timis, said it has achieved its target export rate from its Tonkolili iron ore mine in Sierra Leone, and reconfirmed its 2013 export target of between 13 million and 15 million tonnes. The shares rallied 18.25p to 235p.
Oil producer Nighthawk Energy gave a positive update on its Arikaree Creek field in Colorado, and the shares jetted up 0.34p to 5.78p.
AIM technology tiddler Coms announced a new contract win last week, and the speculation is that it may be about to reveal another. The shares rose 0.12p to 2.7p.
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