10 November 2010
Results: Vodafone, British American Tobacco, BP Plc
State of the Market
Uranium is the new gold?
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Having touched 5,900, yesterday afternoon, the FTSE100 closed at 5,875 - lifting it to a 29-month high - with Vodafone, the world's largest mobile operator by revenue, raising its profit outlook and announcing it had agreed to sell its interests in Japanese mobile telephone operator SoftBank for 3.1 billion pounds.
The last week has also seen some substantial newsflow regarding the re-emergence of the nuclear power industry. Timely, if you had the opportunity to read our previous Dividend Alerts.
The several announcements of major new projects in China has clearly impacted on the uranium spot price as well as (emerging) uranium miners' share prices, such as the one we cover: AIM-listed Kalahari Minerals Plc.
Vodafone half year results
Vodafone has raised its profits forecast for the current year, announcing also that it is to focus on a lesser number of geographical markets and selling off minority shareholdings.
Vodafone's future strategy will now be focused more on Europe, Africa and India, which are areas in which it has been growing steadily in the last few years. As well as exploiting the demand for mobile data services in more developed markets.
Top line earnings per share for the half were stated at 14.3p, but the adjusted figure is nearer at 8.8p – not different from last year. However, an interim dividend of 2.85p was declared, which is a welcome rise of 7.1%.
Vodafone expects adjusted operating profit for the 2011 financial year to be in the range of £11.8bn to £12.2bn, up from its previous range of £11.2bn -£12bn. Profits in the six months to September increased from £5.75bn to £8.24bn, including the gain on the sale of the China Mobile stake, on sales of £22.6bn against £21.8bn.
Vodafone has also just announced that it’s selling its shareholding in Japanese mobile phone operator Softbank Corp for £3.1bn, almost half of which will be used to pay down some of Vodafone's huge debt pile rather than embarking on an acquisition spree.
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BAT's 9 months earnings up, volumes down
While BAT increased overall market share across its top 40 markets, third-quarter results from British American Tobacco came in below market expectations, as volumes fell by 1pc. Volumes rose in Asia – but fell everywhere else.
More importantly though, from our income investing perspective, is, that Paul Adams, BAT’s chief executive, disclosed: "We are on track for another year of good earnings growth."
This should translate in enhanced dividend prospects. Some brokers are forecasting a 2011 dividend of 124.4p which would represent a mega inflation busting increase of almost 20 per cent re-confirming the company’s outstanding rising dividend record – more than doubling in the last five years.
BP returning to the dividend list, sometime in 2011?
BP is expected to return to paying a dividend in 2011, albeit at a substantial reduced level. BP new CEO, Robert Dudley says “the company can again pay a dividend beginning next year, and that the firm has the funds needed to cover its liabilities from the Gulf of Mexico oil spill”
Third quarter replacement cost profit was $5.5bn, excluding exceptional items like the spill, up 18% on last year’s comparative. The company stated that these results demonstrate that BP is well on track for recovery after the accident. We may well initiate coverage of the company, in due course.
The state of the market
The FTSE100 rose to a 29-month closing high on Friday as investors cheered the U.S. Federal Reserve's commitment on Wednesday to extend quantitative easing. Gold subsequently breached $1,400 an ounce.
Nevertheless, on Monday, doubts about peripheral euro zone economies and lousy 2011 car sales forecast depressed the FTSE100 Index somewhat.
This was all 'forgotten' on yesterday when investors and speculators alike returned en masse to the perceived “health” of the UK corporate sector, with Vodafone's and Barclays' positive announcements. Barclays mentioned a sharp improvement in its bad debts that lifted the bank's underlying third-quarter profit.
Miners also provided strong support to the index as gold hit a record high and copper hit a 27-month peak – you wonder why? Energy firms also added to the strength for the FTSE100 Index as crude futures hit a two-year high after the International Energy Agency said oil may exceed $100 per barrel by 2015, further fuelling future inflation. BP shares added some 2.9 percent.
Last week, Mark Dampier, at Hargreaves Lansdown, commented “A lot of this rally is driven by QE in the States. But not enough credit is given to retail investors – private shareholders – in Britain. They have started to come back to the market and been buying shares in earnest in recent months”.
Alarm bells ringing in my ears . . .
And what about the technical wizard's views of the market?
Well . . . "As the FTSEindex has broken through resistance around the 5,833 level, the 5,930 level -- which is a 75 percent retracement of the drop from December 2007 to 2009's low -- will be watched" (whatever that means?), according to Nicole Elliott, technical analyst at Mizuho Corporate Bank. She added that after this there is “a cluster of resistance levels around 6,000”
City Index chief technical analyst at City Index added that
"Currently the index seems to be en route for the next key level of 6,050 - 6,117," "As long as short-term support (at) 5,748 is not violated, the week ahead should remain positive with minor pullbacks taking place along the way”.
However, analysts at Commerzbank cautioned: "The injection of fresh liquidity into the market should increase inflation risks, which could strengthen the demand for certain assets as a store of value and thus result in further gold buying."
Finally, a more sobering note from outspoken investor Jim Rogers, chairman of Rogers Holdings, this is the Rogers who predicted the start of the global commodities rally in 1999: "investors should put money into “real” assets such as metals and agricultural products". He told students to scrap career plans for Wall Street or the City, and to study agriculture and mining instead.
So here you have it: head for the hills with your spades and buckets, tinned beans, some seeds, an agricultural degree and some ounces of gold!
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