Investors hope for positive central bank moves and shrug off Greek woesLeading shares hit a new peak once more, as investors shrugged off the uncertainty of the UK general election and worries about Greece’s debt and US rate rises.It was a bad news means good news day, with poor data from China and the US prompting talk of further stimulus measures from the former and for the latter, a delay in the Federal Reserve increasing borrowing costs. Sentiment was also lifted by the European Central Bank which, despite an unprecedented protest at its press conference, soothed nerves about the eurozone economy and the success so far of its QE bond buying programme. Even the prospect of Greece running out of cash as its next deadline approaches with agreement no closer failed to unsettle the markets.US March industrial production data does not provide any consolation after yesterday’s poor retail sales figures. Consensus was for a weak 0.3% month on month decline, but managed to exceed even this on the downside with a 0.6% fall.Markets are no longer even talking about a June rate hike as a possibility. With data like this, it is not surprising. And if things don’t shape up soon, then even September is going to look a hawkish call.Given Hemphill’s extensive background in South (and sub-Saharan) African financial services, we think the appointment is well-aligned to the strategic outlook for the group. Old Mutual is currently described by management as being at an “inflection point”, between the restructuring/consolidation phase of its strategy, and the next phase, which is operational execution. And furthermore, Old Mutual is increasingly focused upon South Africa and sub-Saharan Africa (with the potential further spin-out of its US Asset Management business and/or IPO of its UK Wealth business likely to further increase this focus in our view).Hemphill appears well placed to take the group through this next phase, following the significant progress on stabilisation and re-focusing made by Julian Roberts since his appointment in 2008. Indeed, Hemphill’s appointment may even see an acceleration of this re-focusing upon Africa. Recent US steel production data show deteriorating volumes over the last two months and we expect this to affect demand for Vesuvius. While productivity enhancement is still attractive for the group’s steel and foundry customers, we have reduced our steel division revenue estimates by 4% (3% for the group) and assumed a 22% drop-through, reducing profits by 6-7%. Vesuvius is robust enough to cope with end-market fluctuations, but we have cut our valuation by 15p to 500p and taken a completely neutral stance. Over the next five years Greggs could return nearly £250m to shareholders, equivalent to 23% of the equity, on our central assumptions, rising towards £400m on our most bullish scenario, equivalent to 36% of the equity. While the market has reacted strongly to the growing recovery story, we believe it has yet to fully grasp the scale of the potential returns of surplus cash to shareholders. We reiterate our buy for Greggs with a new 1300p share price target [from 980p] , implying 22% potential upside.Greggs is one year into a five year plan to transform itself from a high street baker to a bakery food-on-the-go operator with broad appeal in the attractive quick service sector. It’s a strong self-help story where recovery is now firmly entrenched. We believe that all the ingredients are well mixed and baking together to ensure a sustained recovery in fortunes: over the next five years we forecast that Greggs will grow earnings per share by 11% compound annual growth rate, that free cashflow will grow by 27% to £79m and return on invested capital will bounce-back to 19%, well above its weighted average cost of capital of 5.6%.We continue to believe that M&A will be a key driver for the industry, and more specifically for the exploration and production companies...We expect well-funded majors and national oil companies to scrap high-cost, high-complexity projects and focus on gaining exposure to low-cost projects via M&A. We see potential for 5-10m barrels a day of low-cost projects to move from E&Ps/independents to majors/national oil companies, substituting less attractive developments. We upgrade Tullow Oil and Africa Oil to buy from neutral, believing that both offer exposure to strategic assets which sit low on the cost curve.Based on an initial sampling that had been undertaken, which indicates an infection rate of approximately 18% of the total population in Xinfeng Plantation, the board wishes to make clear that the impact of HLB in Xinfeng Plantation will be significant, especially with regard to the 2015 winter harvest.There is no guidance on the potential losses before the results of an investigation are known. We place our recommendation and target price under review pending more news from the company and noting the downside risk to our estimates. Continue reading...
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