03 February 2011

The Intelligent Investor U.K.

The Economic Monitor Series. Free Edition.
INSIDE THE REPORT

MARKETS AT A GLANCE

Stock recommendations and price targets from top brokerage firms Analysis and vi
ews on Royal Dutch Shell, BT Group, Unilever results Economic Indicator Watch Im
portant Events Scheduled on 04 February

Britain's top share index fell with energy shares lower after results from Royal
Dutch Shell disappointed investors and dented sector sentiment. The FTSE 100 wa
s down 16.73 points, or 0.28 percent, at 5,983.34 The yield on 10-year gilts hit
a fresh eight-month high after a solid auction of 2040 gilts and a stronger-tha
n-expected PMI survey of Britain's dominant services sector. At 1439 GMT, the 10
year yield hit 3.799 percent Sterling pared gains versus the dollar in a move dr
iven largely by a sharp drop in the euro after European Central Bank President J
ean-Claude Trichet dampened expectations for a rate hike in the euro zone. Sterl
ing traded down around 0.3 percent at $1.6140 in afternoon dealing after rising
as high as $1.6279 on the UK PMI data. Spot gold was bid at $1,328.70 an ounce a
t 1532 GMT, against $1,336.00 late in New York on Wednesday, having earlier touc
hed $1,337.40. U.S. gold futures for April delivery fell $2.90 to $1,329.20. ICE
Brent crude for March rose as much as $1.03 to $103.37 a barrel, the highest in
traday price since September 2008, and was up 88 cents at $103.22 at 0419 GMT.

Economic Events & Indicators

Halifax House Prices (Jan) UK Monthly Car Registrations figures (Jan)

Q4 Insolvency statistics British Prime Minister David Cameron to visit Belgium.

Corporate Events

Easyjet Traffic Statistics Electrocomponents H2 interim management statement. So

uthern Cross Healthcare Group interim management statement.
STOCK INDICES
INDEX FTSE 100* FTSE 250* FTSE techMARK 100* DAX* CAC 40* Stoxx Europe 600 * CLO
SING VALUES LAST 5983.34 11575.83 2164.59 7193.68 4036.59 284.56 CHNG -16.73 -30
.83 -6.42 10.01 -29.94 -0.03 % CHNG -0.28 -0.27 -0.30 0.14 -0.74 -0.01
Breaking News

UK Services PMI beats forecasts UK divides FSA powers between BoE, CPMA by 2012
BT reports 188k broadband net adds in Q3 Refining concerns overshadow profits at
Shell North Africa turmoil could impact TUI profits Vodafone optimistic on FY p
rofits Unilever reports rise in FY profits

CURRENCIES
INDEX Euro (EUR/USD) UK Pound (GBP/USD) Japanese Yen (USD/JPY) LAST 1.3647 1.615
7 81.49 PRIOR 1.381 1.6189 81.55

All prices are at 11:52 AM EST

FUTURES
LAST Crude Oil Natural Gas (Mar) Gold, (Feb) Copper (Mar) 90.75 4.349 1335.9 453
.75 CHANGE -0.11 -0.08 3.8 -0.65
All prices are at 11:41 AM EST
The Intelligent Investor - U.K.
STOCK RECOMMENDATIONS BY BROKERAGE HOUSES
BROKERAGE/COMPANY BofA Merrill ACTIONS RATING PREV CLOSE
Aggreko
Investec
Raises to buy from neutral Raises price target to 503p from 360p
Starts with buy rating
Buy -Buy
Buy
1427p 571.50
470.50p
Arm Holdings IG Group
Arden Partners E2V Technologies JP Morgan Heritage Oil
Raises to buy from add
115.50p
Cuts price target to 380p from 470p
Overweight
315p
Disclaimer: The views and investment tips expressed by investment experts are th
eir own, and not that of IBTimes or its management. We advise users to check wit
h certified experts before taking any investment decisions.
ECONOMIC INDICATOR WATCH ON FEB 04, 2011
Halifax Houses Prices mm(Jan)
Forecast: 0.00%, Prior: -1.32% Forecast: -3.0%, Prior: -1.6%
Halifax Houses Prices 3m/yy(Jan)
The Halifax house prices survey which is due for release at 0800 GMT, is likely
to show the rate of decline to be significantly less than the previous figure, a
gainst a backdrop of subdued mortgage lending, and weak consumer morale. But the
drops are not expected to be anything like the scale of the 20 percent fall see
n in the recession. Prices in the three months to December were 0.9% lower than
in the preceding three months. This rate of decline remains significantly lower
than the quarterly falls of 5-6% during the second half of 2008. House price dat
a on this basis provides the clearest indication of overall market trends, smoot
hing out the monthly volatility caused by the reduced number of monthly transact
ions used to calculate all house price indices. On an annual basis, prices in De
cember were 1.6% lower as measured by the average for the latest three months ag
ainst the same period a year earlier. Prices in December alone were 3.4% lower t
han in December 2009.
UK Monthly Car Registrations figures (Jan)
The Society of Motor Manufacturers and Traders is due to release UK monthly car
registrations figures for the month of January at 0900/0900/0400. For the month
of December, car sales fell by 18% to 123,817 as compared to a year ago, while o
n year basis it rose by 35,847 in 2010 to 2,030,846. Total sales surged by almos
t 20% in the first half of the year but fell back by 13.8% in the second six mon
ths. However SMMT said that the motor industry could face difficulty in upcoming
 months because of the "extremely challenging" economic conditions. More than 10
0,000 cars were sold through the scrappage scheme last year, around 5% of the to
tal. Chief executive of the SMMT, Paul Everitt said 2010 as a year of recovery f
or the motor industry, adding that the industry expects demand to strengthen in
the second half of the year. The best-selling car for December month was the Vau
xhall Astra, while Ford Fiesta was the top-selling model for the whole of 2010,
with sales of more than 100,000.
Q4 Insolvency Statistics
The Insolvency service is due to release its statistics for fourth quarter at 09
30/0930/0430. For the third quarter, there were 3,974 compulsory liquidations an
d creditors’ voluntary liquidations in total in England and Wales in the third qua
rter of 2010 (on a seasonally adjusted basis). This was a decrease of 2.2% on th
e previous quarter and a decrease of 13.9% on the same period a year ago. There
were 1,141 other corporate insolvencies in the third quarter of 2010 (not season
ally adjusted) comprising 349 receiverships, 633 administrations and 159 company
voluntary arrangements. In total these represented a decrease of 27.7% on the s
ame period a year ago. Within this, administrations were down 35.0%. There were
also 33,935 individual insolvencies in England and Wales in the third quarter of
2010 as compared to 3.7% on the same period a year ago. In the third quarter of
2010, 84.4% of bankruptcies were made on the petition of the debtor, broadly co
mparable to the levels for recent quarters. The percentage of bankruptcy orders
involving trading debts (self-employed bankruptcies) was 12.8% in the second qua
rter of 2010 (third quarter 2010 figures for trading-related bankruptcies are no
t yet available), similar to the level for 2009 as a whole. In the twelve months
ending Q3 2010, approximately 1 in 133 active companies (or 0.8% of all active
registered companies) went into liquidation, which is a slight decrease from the
previous quarter, when this figure stood at 1 in 127. As Figure 3 shows, the li
quidation rate remains low compared to a peak of 2.6% in 1993, and the average o
f 1.3% seen over the last 25 years. It should be noted that the number of active
companies has changed considerably over this period; there were over 2.2 millio
n active registered companies in Q3 2010; this compares with only about 900,000
in the early 1990s and less than 800,000 in 1986. In the twelve months ending Q3
2010, approximately 1 in 311 people became insolvent. This is down from 1 in 30
7 in the previous quarter. As Figure 3 shows, the individual insolvency rate has
displayed a steeply upward path (with some fluctuations) since 2004 and is curr
ently elevated compared to the annual average of 1 in 575 (0.1%) people seen ove
r the last 25 years.
The Intelligent Investor - U.K.
ANALYSIS AND VIEWS
Royal Dutch Shell down on FTSE100 despite near-doubling earnings
By IBTimes
Shares in Royal Dutch Shell were down on the FTSE 100 in morning trading despite
the energy giant reported a near-doubling of full year earnings. In the fourth
quarter of 2010 earnings rose 384 per cent from the previous year to $5.7 billio
n. In the full year earnings increased 90 per cent to $18.6 billion. Net capital
investment in the fourth quarter was reported as being $1.5 billion, while tota
l cash dividends paid the shareholders in the period totalled two billion dollar
s. The group said that it was holding fourth quarter dividends at $0.42 cents pe
r share, a figure which is likely to remain unchanged in the first quarter of 20
11. Peter Voser, Chief Executive Officer of Royal Dutch Shell, said, "Our 2010 e
arnings increased substantially from 2009 levels, driven by improving industry f
undamentals, and Shell s production growth and cost performance. Our 2010 oil an
d natural gas production volumes were 3.3 million boe/d, an increase of 5%. LNG
sales volumes increased by 25%, with continued growth in Downstream. Fourth quar
ter and full year 2010 earnings were supported by higher oil prices and chemical
s margins. However, our earnings were impacted by weak refining margins, pressur
e on certain regional natural gas prices, and volatility in Downstream marketing
margins as a result of rising oil prices." Richard Hunter, Head of UK Equities
at Hargreaves Lansdown Stockbrokers, commented, "Stripping out adjustments, Shel
l profits are somewhat shy of market estimates and the shares have reacted accor
dingly in early trade. "Even so, net income was well above expectations and a si
gnificant improvement on the previous year. Higher oil prices inevitably provide
d a tailwind, but the production story is central to the bull case. Apart from r
eversing a previously downward move in production, Shell s future prospects are
beginning to look brighter as the benefits of a large investment programme begin
to filter through. Pressures remain on certain gas prices and refining margins,
whilst the Gulf of Mexico spill continues to cast a shadow on the sector and fu
ture drilling prospects. "In all, the company has succumbed to a tinge of disapp
ointment on the numbers and some profit taking, with the shares having risen 27%
over the last year, as compared to a wider FTSE100 gain of 14%. Today s setback
is likely to be short-lived, however, with the general market view being that t
he shares are a buy and currently preferred as a play to BP." Royal Dutch Shell
"A" shares were down 2.98 percent and closed at 2200 pence per share while "B" s
hares dropped 3.27 percent and closed at 2177.50 pence.
ANALYSIS AND VIEWS
BT reports 188k broadband net adds in Q3
By IBTimes
British telecommunications company BT Group reported its highest share of DSL br
oadband net additions for eight years and said reported pretax profit for the th
ird quarter more than doubled from last year. For the quarter ended December 201
0, reported pretax profit was 441 million pounds, up from 209 million pounds in
the year-ago quarter. Adjusted pretax profit increased 30 percent to 531 million
pounds. BT said it had a "good" third quarter in broadband with net additions o
f 188,000, representing a 53 percent market share. In the second quarter, BT sai
d its share of DSL broadband net additions was 45 percent. "These results show t
hat we are making progress on a number of fronts. There is always more to do but
our performance underpins our outlook for this year and the period to 2012/13,"
said chief executive Ian Livingston. Revenue fell 3 percent to 5.04 billion pou
nds ($8.2 billion) as revenue at its Global Services and Retail businesses fell
7 percent and 3 percent respectively. Revenue at BT s Wholesale and Openreach bu
sinesses remained flat. BT said total group operating costs reduced 5 percent to
4.4 billion pounds. Payments to telecommunications operators fell 12 percent to
937 million pounds reflecting lower mobile termination rates and transit and wh
olesale call volumes, BT said. As at December 31, net debt was 8.67 billion poun
ds, down 1.44 billion from December 2009 levels. Looking ahead, BT said it expec
ts Global Services to be cash flow positive a year earlier than targeted, genera
ting operating cash flow of around 100 million pounds in 2010/11 and 200 million
pounds for 2011/12.
The Intelligent Investor - U.K.
ANALYSIS AND VIEWS
Unilever share price up on FTSE 100 as FY profits rise
Shares in Unilever were up on the FTSE 100 in morning trading after the consumer
goods group reported a rise in turnover and net profit in the fourth quarter an
d full year 2010. Turnover in the full year rose 11.1 per cent to 44.3 billion e
uros, while net profit increased 26 per cent to 4.6 billion euros. In the fourth
quarter of 2010 turnover climbed 12 per cent to 10.8 billion euros and net prof
it was up 15 per cent to just over a billion euros. The group said it would be p
aying a quarterly dividend of 0.208 euros per share. Paul Polman, Chief Executiv
e of Unilever, said, "We are pleased with another year of good results in which
we delivered against all our key priorities and further progressed the transform
ation of Unilever. We delivered strong volume growth, particularly in emerging m
arkets which continued to be the engine of growth. We gained volume share in all
regions driven by stronger innovations, significant increases in marketing inve
stment and the extension of our brands into new territories. At the same time we
delivered margin improvement through a strong savings programme, lower indirect
s and volume efficiencies. This, coupled with excellent working capital manageme
nt, enabled us to deliver robust cash flow. "The Unilever of today is more agile
and confident, now fully fit to compete. We remain focused on serving our consu
mers and customers and building the long term health of our brands. Despite the
intense competition and the return of commodity cost volatility, our objectives
remain: profitable volume growth ahead of our markets, steady and sustainable un
derlying operating margin improvement and strong cash flow." Keith Bowman, Equit
y Analyst at Hargreaves Lansdown Stockbrokers, commented, "With consistent deliv
ery of performance the key to unlocking a higher valuation rating, Unilever appe
ars to be turning the key. Expansion in the Emerging Markets remains the core dr
iver of sales, whilst the group s emulation of product innovation and cost conta
inment at rival Reckitt Benckiser is playing a vital part. "Nonetheless, there r
emains little room for complacency. Volatile and currently elevated commodity/ra
w material prices provide a cost threat to profit margins, while the ability to
recoup such costs in the Emerging Markets may prove difficult, with food and con
sumer goods still accounting for a sizeable proportion of earned income. Further
more, competition is already intense, with major player Proctor & Gamble yet to
fully engage in Western Europe and the Emerging Markets. "In all, Unilever s tra
nsformation deserves credit. The break from traditionally home-grown management
was a big change in culture, the product portfolio has been slimmed substantiall
y, whilst product innovation takes time and effort to nurture. On balance, marke
t consensus opinion currently denotes a buy."
THE NEXT TRADING DAY
Economic Events

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo speaks
at the University of Malaga at 0830 GMT. British Prime Minister David Cameron vi
sits Belgium.

Company Events
British low-cost airline Easyjet will release its Traffic Statistics for the mon
th of January 2011. The company in January said that first-half losses might dou
ble due to higher fuel prices and tough economic conditions, after it took a 31
million pound hit from the big freeze and strikes late last year. Chief Executiv
e Carolyn McCall said: "The economic outlook in Europe remains uncertain and the
higher market price of fuel will inevitably put pressure on margins in the shor
t-term.” The budget carrier has warned that rising cost of jet fuel could increase
 first-half pretax losses to around 160 million pounds, almost double the 78.7 m
illion pound ($125.8 million) loss it posted in the same period last year. Easyj
et reported a 7.6 percent increase in passenger numbers to 3.7 million in Dec-20
10 while load factors rose 0.4 ppts to 85.4%. For the full year, it reported a 7
.9 percent increase in passenger numbers to 49.7 million and a 1.2ppt improvemen
t in load factor to 87.2%.
British electronics supplier Electrocomponents will release its second half inte
rim management statement for the year ending 31 March 2011 on 4 February 2011. T
he firm in November reported more than doubled pretax profit in the first half,
boosted by online sales and cost control. Pretax profit for the six months to Se
ptember 30 rose 104 percent from a year earlier to 50.5 million pounds while rev
enue increased by 24 percent to 563 million pounds. The company also said that f
ull-year results will be better than anticipated. The company sells batteries, s
emiconductors, cables and resistors mostly industry customers. Group Finance Dir
ector Simon Boddie said the company s strong cost controls have been aided by mo
re online sales and rationalising warehouses in Britain. Chief Executive Ian Mas
on said the firm would continue with its strategy of focusing on international s
ales, which now account for 70 percent of the business, and growing online sales
in countries such as Poland, Hungary, the Czech Republic and China. The UK s la
rgest care home provider, Southern Cross Healthcare Group will release interim m
anagement statement. The company in December reported an increase in revenue by
2.3 percent to £958.6 million while its operating loss was at £44.1 million after a
non-cash charge of £51.3 million for future minimum lease increases under IAS17 an
d exceptional charges of £6.3 million. Excluding these charges, operating profit w
as £13.5 million.
The Intelligent Investor - U.K.
TOP STORIES
UK Services PMI beats forecasts
The headline services PMI activity index rose to 54.5 in January from a 20 month
low of 49.7 in December. It was well above forecasts for a reading of 51.4. Mar
kit said that some businesses had received additional orders in January, displac
ed from December because of the snow. Chris Williamson, chief economist at surve
y compiler Markit said that week s PMI surveys indicated the economy was growing
at an underlying quarterly rate of around 0.4 pct. The input cost index rose to
65.8 from 60.5, the largest jump since the survey began in 1996.
UK divides FSA powers between BoE, CPMA by 2012
UK lawmakers stated that U.K. government may take back the power from Financial
Services Authority (FSA) and divide its powers between the Bank of England and a
New Consumer Protection and Markets Authority (CPMA) by 2012 to learn lessons f
rom the financial crisis. Andrew Tyrie who chairs parliament s treasury select c
ommittee, which authored the report said that Britain government is rightly prop
osing essential changes to the way in which financial services are regulated. "T
he report recommends that the government pay full regard to the ICB before comin
g to conclusions on financial regulation. This also has implications for the tim
etable set out," the treasury committee said in a statement.
BT reports 188k broadband net adds in Q3
British telecommunications company BT Group reported its highest share of DSL br
oadband net additions for eight years and said reported pretax profit for the th
ird quarter more than doubled from last year. For the quarter ended December 201
0, reported pretax profit was 441 million pounds, up from 209 million pounds in
the year-ago quarter. Adjusted pretax profit increased 30 percent to 531 million
pounds. BT said it had a "good" third quarter in broadband with net additions o
f 188,000, representing a 53 percent market share. In the second quarter, BT sai
d its share of DSL broadband net additions was 45 percent. Revenue fell 3 percen
t to 5.04 billion pounds ($8.2 billion) as revenue at its Global Services and Re
tail businesses fell 7 percent and 3 percent respectively. Revenue at BT s Whole
sale and Openreach businesses remained flat. Looking ahead, BT said it expects G
lobal Services to be cash flow positive a year earlier than targeted, generating
operating cash flow of around 100 million pounds in 2010/11 and 200 million pou
nds for 2011/12.
Refining concerns overshadow profits at Shell
Shell disappointed investors with below-forecast fourth-quarter profit, with con
cerns over its refining business overshadowing a sharp rise driven by higher oil
prices. The results followed strong earnings from Chevron and Exxon Mobil, alth
ough BP, struggling to put the Gulf of Mexico oil spill behind it, fared less we
ll. Shell shares fell 3 percent, with analysts saying they had expected more and
expressing concern over continued weakness in the Anglo-Dutch oil major s refin
ing business, with oil product sales rising just 5 percent year-on-year. "Our ea
rnings were impacted by weak refining margins, pressure on certain regional natu
ral gas prices, and volatility in downstream marketing margins as a result of ri
sing oil prices," Shell said. Arbuthnot analyst Dougie Youngson said margins wou
ld be under increased pressure if oil prices remained at around $100 a barrel fo
r long.
North Africa turmoil could impact TUI profits
Europe s biggest tour operator, TUI Travel, said that the turmoil in Egypt and T
unisia threatens to reverse the improving trend unrest in Egypt and Tunisia, whi
ch could wipe up to 30 million pounds ($49 million) off its profits with holiday
makers being advised to stay away from the region. The company said the overall
impact on its second-quarter profit would be between 25 and 30 million pounds. C
hief Executive Peter Long said that they are monitoring events in Egypt and Tuni
sia and the safety of our customers is our primary consideration. "Early indicat
ions are that customers are choosing to rebook to alternative destinations, and
we are taking action to remix our programmes in line with customer demand," he a
dded.
Vodafone optimistic on FY profits
Vodafone, the world s largest mobile operator by revenue said that it is now opt
imist on its full year profit due to the strong demand in India and Turkey and i
mprovements in Britain, Germany and South Africa. The company said that it now e
xpected adjusted operating profit for the year to end-March to be towards the up
per end of its previously stated 11.8 billion pound ($19.13 billion) to 12.2 bil
lion pound range. The rest of the outlook was unchanged. The company which repor
ted a solid trading in the third quarter said that the trading stabilised in Ita
ly but remained challenging in Spain. Total revenue was up 3.5 percent organical
ly to 11.89 billion pounds.
Unilever reports rise in FY profits
The consumer goods group reported a rise in turnover and net profit in the fourt
h quarter and full year 2010, driven by a strong savings programme, lower indire
cts and volume efficiencies. Turnover in the full year rose 11.1 percent to 44.3
billion euros, while net profit increased 26 per cent to 4.6 billion euros. In
the fourth quarter of 2010 turnover climbed 12 per cent to 10.8 billion euros an
d net profit was up 15 per cent to just over a billion euros. The group said it
would be paying a quarterly dividend of 0.208 euros per share. Paul Polman, Chie
f Executive of Unilever, said that he was pleased with another year of good resu
lts in which we delivered against all our key priorities and further progressed
the transformation of Unilever. The company gained volume share in all regions d
riven by stronger innovations, significant increases in marketing investment and
the extension of our brands into new territories.
This report is produced by International Business Times For questions or comment
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ts visit www.ibtimes.com © IBTimes 2010. All rights reserved.