Source: Bloomberg

FTSE-100 statistics

Source: Bloomberg

Compiled by

Company News

Sources: Bloomberg, Reuters, Consensus forecasts

Hikma Pharmaceuticals (HIK.L, 749.5p) – Hold

Hikma Pharmaceuticals reported results for H1 2012 ended 30th June 2012 yesterday. Revenue increased 34.8% to US$532.3m and beat market expectations. Organic revenue rose 7.6% y-o-y slower than the 9.6% in H1 2011. Revenue from the branded division grew 24.6% to US$248.8m with recently acquired businesses of Promopharm and Savanna contributing US$23.6m. Injectables revenue increased 94% to US$225.2m thanks to acquisitions in the US, where revenue doubled to US$136.6m. The management expects a similar performance at the injectables division in H2 2012. However, revenue at the generic division declined 27.0% to US$55.8m due to additional compliance work at the Eatontown facility and increased pricing pressures. For FY2012, the management revised the revenue guidance for the division downwards to US$115m from US$125m expected previously, compared to US$155m in FY2011. Group gross profit rose 35.6% to US$234.1m. Gross margin improvement at the injectables division offset the lower margin at the generic division helping the group gross margin improve 30 basis points to 44%. EPS rose 22.2% to US$0.204. Dividend per share increased 9.1% to US$0.06. The management re-iterated the guidance of 20% revenue growth in FY2012.

Our view:Hikma Pharmaceuticals reported slower growth in organic sales for H1 2012. In February, the company’s oral dosage facility at New Jersey was served a warning letter by the US Food and Drug Authority (FDA). The corrective action required to conform to the FDA’s directives has hampered production of generic drugs compelling the management to lower the annual revenue guidance for the division. In addition, Hikma Pharmaceuticals earns more than half its revenue from the Middle East and North Africa (MENA) region, which is a bit concerning given the slow recovery from turbulent political protests. Though the management maintaining the 20% revenue growth guidance lifts some of the worries; considering the lower production at the Eatontown facility, slower organic growth and higher risk associated with revenues from the MENA region, we have a hold rating on the stock.

Micro Focus International (MCRO.L, 541.5p) – Buy

Micro Focus International issued a trading update for the period from 30th April 2012 to 31st July 2012 yesterday. The management said revenue is likely to be impacted by the weakness in the Euro. However, they re-iterated their earlier guidance of revenue growth between -3% and 1% for FY2013, on a constant currency basis. Revenue for the period benefitted from a one-off licence transaction in the test business. Underlying growth in the licensing business continued while underlying revenue from the maintenance and consulting businesses declined. For the period to 31st July 2012, the adjusted EBITDA was in line with management expectations and similar to the previous year, on a constant currency basis. The previously announced guidance range of 37% to 42% for adjusted EBITDA was kept unchanged too. Net debt declined to US$90.4m from $113.2m on 30th April 2012. The company proposed a return of 50p per share to shareholders, expected to return around US$130m to shareholders.

Our view: Micro Focus International has a strong business as a provider of COBOL software, which though old, is applied in key sectors from banking and finance to business administration in the private and public sector. Though topline growth has been impacted by a decline in maintenance and consulting revenue, we expect the recent investment in research and development to bear fruit in the medium term. Further Micro Focus enjoys strong cash flows compared to newer technology based firms. We believe the return of cash to shareholders reflects the management’s confidence in the sustainability of strong cash flows, which outweigh the modest expected sales growth. We are buyers of the stock.

Talvivaara Mining (TALV.L, 137p)

Talvivaara Mining released results for Q2 2012 and H1 2012 ended 30th June 2012 yesterday. In Q2 2012, nickel production declined 19.2% y-o-y to 3,194 tonnes, and production of zinc shrank 12.7% y-o-y to 6,686 tonnes. For H1 2012, production of nickel declined to 6,568 tonnes from 8,166 tonnes in H1 2011 while zinc production increased to 14,576 tonnes from 14,005 tonnes the previous year. Net sales decreased 14.3% to €33.4m in Q2 2012 from €37.6m in Q2 2011. For H1 2012, net sales declined 30.3% to €72.5m from €104.1m in H1 2011 due to a decline in nickel prices and lower deliveries. Consequently, net losses widened to €32.4m in H1 2012 from €5.5m in the previous comparable period. The management lowered the annual production guidance for nickel to 17,000 tonnes from 25,000-30,000 tonnes estimated previously due to the dilution effect of excessive water in circulation which lead to the mining of low-grade ore and continued heavy rainfall in July and August. The decision to implement sustainable methods while ramping up production is also expected to lower annual output. Nonetheless the management expect to achieve an annualise production rate of 25,000 tonnes per annum by Q4 2012.

Economic News

Sources: Bloomberg, Reuters, Consensus forecasts

UK retail sales

Retail sales in the UK rose 0.3% m-o-m and 2.8% y-o-y in July, the Office of National Statistics (ONS) said yesterday. Economists were expecting retail sales to drop 0.2% m-o-m but rise 2.0% y-o-y. The rise in promotional activities and decline in fuel prices helped petrol sales increase 2.6% m-o-m in July. Food sales increased 0.4%. Excluding fuel, retail sales were unchanged from June but increased 3.0% y-o-y. The ONS also revised the retail sales for June to 0.8% m-o-m increase from 0.1% reported previously. This revision lowers the fall in retail sales in Q2 2012 to 0.3%.

Eurozone inflation

Consumer prices declined 0.5% m-o-m in July after falling 0.1% m-o-m in June, the Eurostat reported yesterday. Annual inflation stabilised at 2.4% for the third month consecutive month. Core inflation, excluding food, alcohol and fuel prices, edged up 1.7% in July slightly ahead of the 1.6% gain the previous month.

US initial jobless claims

In the week ended 11th August, initial claims filed to avail joblessness benefits increased by 2,000 to a seasonally adjusted 366,000, the US Department of Labor said yesterday. The claims for the week ended 4th August were revised to 364,000 from 361,000 reported previously. The four-week moving average of initial claims, a less volatile series, fell by 5,500 to 363,750, the lowest since the week ended 31st March 2012.

Sources: Bloomberg, Reuters, Consensus forecasts

Sources: Bloomberg, Reuters, Consensus forecasts

Recommendations

During the three months to end-July 2012, the number of stocks on which HB Markets has published recommendations was 149, and the recommendations were as follows: Buy – 70; Speculative Buy – 10; Hold – 51;
Sell – 18

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