FTSE-100

Source: Bloomberg

FTSE-100 statistics

Source: Bloomberg

Analyst

Donald Linderyd

(t) +44 (0) 207 382 8421

(e) donald.linderyd@hbmarkets.com

Company News

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

William Hill (WMH.L, 278.3p) – Buy

The interim statement released Friday showed group revenue at William Hill rose 12% in Q1 2012 ended 27th March 2012. Retail revenue grew 5% due to a 2% expansion in amounts wagered. Gross machine win per week increased 3.7% to £918. Online revenue increased 33%. Operating profit was 19% higher y-o-y. Sportbook net revenue increased 58% y-o-y, with bets placed via mobiles accounting for 19% of total sportbook revenue. Amounts wagered at sportbook grew 31%. The management said its application for a gaming license with the Nevada Gaming Commission is progressing well. Considering the positive underlying trend set in Q1 2012, they remain confident of meeting full year expectations.

Our view: William Hill’s mobile app was well received and boosted online sales. The company said its licensing application with the Nevada Gaming Commission, which will enable it to expand its operations into the US through acquisition of three land-based sports betting businesses, is progressing per schedule. Also, its relationship with software partner Playtech seems to have thawed. Following the report we expect to see further upward revisions in earnings estimates and raise our rating to buy.

IMI (IMI.L, 992p) – Hold

IMI issued an interim management statement for Q1 2012 on Friday. Revenue grew 8% y-o-y. Organic revenue increased 6%. Revenue from severe services rose 30% y-o-y (20% organically) as increased output from the Brno facility helped improve new valve shipments. The management expects this growth to normalize in Q2 2012, as the division faces tougher comparables from the previous year. Fluid power revenue was similar to that in Q1 2011 as growth in US and Asia offset weak sales in Europe. Though construction activity in Europe remained weak, energy efficiency legislation helped drive revenues at the indoor climate division. In Q1 2011, merchandising division saw organic revenue grow 14%. The management said the weakening of the Pound sterling against the US dollar while strengthening against the Euro, posed significant headwinds to the business. However, H1 2012 results are expected to be in line with management expectations.

Our view: In February, IMI announced that the acquisition of Remosa SpA (€82.4m) and Grupo InterAtiva (£22m) strengthened its position in South America. However, on Friday, the management said that growth is expected to moderate in 2012. They also expect to face “transactional headwinds” due to currency movements. Taking stock of these announcements, we see better opportunity elsewhere in the sector and maintain a hold rating for IMI.

Rotork (ROR.L, 2,220p) – Hold

Rotork released an interim statement for Q1 2012 ended 30th March 2012. Revenue grew 26% y-o-y and organic revenue on a constant currency basis grew 14%. Q1 2012 order book increased 7.2% y-o-y to £169m. The controls division saw a slight slowdown in China, but the management considers that long term prospects have yet not changed. Increase in business in other geographies contributed to growth. The controls division is set to launch new products. However, new product introductions and inflationary pressures are driving up costs for the company. At the fluid systems division, order intake expanded 36% y-o-y, but the lag in conversion of sales will skew revenue realisation towards H2 2012. The margin target for the division remains 15%. The newly formed instruments division is looking at leveraging the Group’s global presence to expand in the other markets such as Singapore, China, India, Russia, Mexico and Brazil. The strength of the order book and strong order intake offered the management confidence about growth in 2012.

Our view: Rotork’s new instruments division should be able to utilise the company’s wide geographic footprint to quickly gain a toehold in the emerging markets, opening up further growth avenues for the company. Its strong order book and order intake in Q1 2012 offer enhanced revenue visibility. However, we believe the recent appreciation in the share price (14% over the past three months) factors in most of these positives and the stock looks fully valued.

Spectris (SXS.L, 1,840p) – BUY

On Friday, Spectris released an interim statement for Q1 2012 ended 31st March 2012. Revenue rose 21% y-o-y due to higher contribution from acquisitions. Like-for-like revenue increased 5%. Geographically, Asia-Pacific and North America saw organic revenue growth of 7% each, while Europe increased 2%. The management said 2012 growth rates have moderated after recovering sharply in 2011. Nonetheless, they remained confident of performance for the remaining year as investment in new products and acquisitions spur growth.

Our view: Acquisitions of rivals Omega Engineering and Sixnet in 2011, coupled with the strong performance in the Asia Pacific region (33% of sales last year) continues to fuel growth for the company. With the enhanced focus on cost rationalisation by most companies in the current economic environment, the demand for the Spectris’ productivity enhancing equipment is expected to rise.

SuperGroup (SGP.L, 351.8p)

SuperGroup issued an update for the financial year ending 29th April 2012, last Friday. The fashion retailer said profit before tax for the year is likely to be £43m versus the expectations of £50m, previously. The downward revision in profit was due to “arithmetic errors” worth £2.5m in the forecast of the wholesale business. The wholesale business is also likely to experience a shortfall of £2.0m due to the pull-down of stock over the year end period by both franchise and wholesale customers. Further, the retail sales, though in-line with expectations, could be reporting lower margins. Shares of SuperGroup lost 38% of their value on the profit warning

Economic News

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

UK Retail sales

Retail sales in the UK surged 1.8% m-o-m and 3.3% y-o-y in March following a m-o-m gain of 0.8% and an annual gain of 1.0% in February, the Office of National Statistics said Friday. Q1 2012 recorded a 0.8% growth in retail sales compared to 1.1% in Q4 2011.

Our view: The stronger growth in retail sales surprised economists who were expecting an increase of 0.4%. Warm weather and panic buying of automobile fuel following a strike threat issued by fuel-tanker drivers helped retail sales rise in the month. Nonetheless, the data suggests resilient consumer spending, in the face of high unemployment and inflation, probably saved the economy from slipping into a recession in Q1 2012.

Germany IFO Survey

Business confidence in Germany continued its upward trend after edging up to 109.9 in April from 109.8 in March, the IFO Institute said on Friday. The sub-index of current expectations rose to 117.5 from 117.4, while the future expectations index remained unchanged at 102.7.

Our view: Economists had forecast the headline index to fall to 109.5. However, the actual performance indicates that the economy continues to outpace its neighbours. The continuous uptrend also suggests that economists may have underestimated the underlying strength of the German economy. However, the imminent recession in Germany’s core trading partners in the Eurozone, tepid recovery in the US and a soft landing expected in China could affect export growth in Germany.

German producer prices

Producer prices in Germany rose 3.3% in March up from a 3.2% in February, the Destatis reported yesterday. Wholesale prices accelerated 0.6% m-o-m after rising 0.4% the previous month. Core prices, excluding food and energy, advanced 0.3% m-o-m and 1.6% y-o-y.

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

Sources: Bloomberg, Reuters, Standard & Poor’s EMS Marketscope, Consensus forecasts

Recommendations

During the three months to end-March 2012, the number of stocks on which HB Markets has published recommendations was 183, and the recommendations were as follows: Buy – 87; Speculative Buy – 2; Hold – 75; Sell – 19.

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