Market Report: The numbers add up for Aberdeen Asset Management
Tuesday 30 April 2013
The City is full of analysts and number crunchers paid vast sums to predict how companies will perform. But yesterday the entire market was caught out on just how much a fund manager achieved. Aberdeen Asset Management took the City by surprise with a 37 per cent increase in profits and 36 per cent rise in dividend and its shares hit the top of the table, up by more than 8 per cent – or 33.4p – to 450.5p.
But where was the surprise? We have heard it all before – the great rotation to equities, institutional investors are inundated with money and the FTSE 100 itself is up nearly 10 per cent on the year.
The fact fund managers have been doing well shouldn't have come as a shock. Analysts at Peel Hunt admitted the forecast-beating results were for "boringly consistent reasons" – improved margins.
Some think Aberdeen's plan to expand via smaller acquisitions helped get people interested while RBC Capital Markets' analysts think Aberdeen management's reference to "strongly" increasing the dividend helped.
But why didn't the City see it coming? Perhaps the City is currently full of more bears than bulls.
A note yesterday from spread-betting firm IG Group tested the temperature of investors and their outlook for the year and found just that. It looked at the old adage "sell in May, and go away, and don't come back until St Leger's day" alongside the newer theory "Spring Swoon" – that the global economy is facing a regular bout of weakness. IG's data suggests investors expect a "new weak" period for markets in 2013. The report says "clients are net short on all three indices… and with worries about the health of the global economy mounting they may be proved right".
Across the wider market, disappointing economic data from Europe and the US barely registered and it was the reaction of the bond market to the newly formed Italian government that moved the UK market. A steady rise picked up in the afternoon session and the FTSE 100 added 31.6 points to 6,458.02.
A blue-chip loser was supermarket Sainsbury's. The chief executive Justin King insisted he is staying put despite rumours to the contrary. But Citi's analysts think it's time for investors to check out. Citi downgraded it to hold from buy – and it lost 0.7p to 382.1p.
Telecoms giant BT slipped 4.9p to 280.9p but analysts at Liberum Capital still rate it a buy. They upped their price target for the group to 315p.
"Is the North the new South?", asked the scribblers at Jefferies, as they said it was the right time to pile into shares in regional housebuilders.
The Government's Help to Buy scheme is a silver bullet, they claim, as "mortgage availability has been the brake on recovery. Help to Buy has the potential to release that brake".
But they said: "London's residential market has the highest house prices, the largest rented sector and the lowest reliance on mortgage finance.
"We suspect that Help to Buy will do little to reduce the gap between the 'haves' and the 'have nots'."
So it is the regional housebuilders who will benefit. Jefferies raised Bellway Homes to buy, up from hold, with a 1,668p price target and Redrow got a 278p price target. The two companies raced up the mid-cap index, rising by 40p to 1,377p and 6.1p to 213p respectively.
But even London-focused Berkeley got an upgrade to hold and it rose 20p to 2,134p.
A housing boom could benefit estate agent Countrywide. Credit Suisse started covering the recently listed group with a 510p target price and an outperform rating. It was 12p higher at 467p.
However, there was a stark contrast between the housebuilders and the construction firms. Balfour Beatty issued a profit warning and its shares dived 23.5p to 222.9p. Construction group Carillion also dropped 17.1p to 272.7p.
Rumours of takeover were electrifying engineer Invensys. Reports at the weekend suggested that France's Schneider Electric and the US's Emerson Electric are taking a look and ValueAct Capital Management bought a 8.16 per cent stake. The shares surged 6.4p to 364.8p.
Greece's Coca-Cola Hellenic Bottling Company started trading in London yesterday at 1,750p. It has listed here to tap into a wider investor base.
The decision last year was a blow to the suffering Greek financial sector. The group also moved its headquarters to Switzerland.
Buy: RENTOKIL INITIAL
Try to catch some shares in Rentokil, Espírito Santo recommends. The rat catcher has sold its struggling City Link delivery business and Espirito thinks the sale will "free management resources" so they can focus on "more attractive divisions capable of sustainable, high margin". It rates the shares, currently 96p, at 115p.
Liberum Capital has no appetite for Greggs shares. The broker recommends selling holdings in the baker after its profit warning yesterday as there is still a "high level of uncertainty surrounding the aggressive discounting from competitors, declining footfall on the UK high street as well as the decline in current trading already seen this year". The shares are 422.7p and Liberum gives it a 406p price target.
Hold: LLOYDS BANKING GROUP
Hang on to shares in Lloyds Banking Group, Investec suggest. The analysts think there is "heightened expectations ahead of tomorrow's first-quarter statement" with "quite a few nuggets of good news". But Investec's Ian Gordon thinks Lloyds "needs to find a few more rabbits to drive the share price much higher" and he rates it a hold at the shares' current 53.5p price.
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