Thursday tips round-up: ICAP, Shanks, Indian mobile auctions
Thu 27 Sep 2012
LONDON (SHARECAST) - The problems of Icap and the other inter-dealer brokers are those of the City as a whole. The markets — whether equities, interest rate derivatives, foreign exchange or whatever — are quiescent, claims Martin Waller, writing in the Tempus column in The Times. Icap has been the subject of a series of profits downgrades and, given the lack of forward visibility for future trading levels, pessimism is probably the best stance, if not merely to head off any more, and it has been cutting costs accordingly. The shares, off 11½p at 332½p on Wednesday, sell on 9.6 times earnings and have the support, at this level, of a 6.9 per cent yield, but there are no immediate grounds for optimism, Tempus believes.
Waste management firm Shanks issued a profit warning on Wednesday after being hit by a contraction in the Eurozone. Questor in the Telegraph still thinks the shares are a buy. The recession has hit trade at its solid waste business, which constitutes about 40% of profits. The unit sorts and reprocesses waste generated in industry, particularly construction, and volumes have been hit by the Eurozone crisis. Adding to pressure on margins from lower volumes, the value of recycled waste has also slipped. Analysts are now likely to cut current-year profit forecasts to around £30m. However, the rest of the business is performing “robustly”. Shanks’s hazardous waste operation, which makes up about 38% of profit, is trading strongly. Trading on a current-year earnings multiple of 12.3 times falling to 10.3 and yielding 4.1%, Questor says buy for the medium-term growth drivers and operational leverage to a recovery.
Move over, Cain and Abel, cries the Lex column in the Financial Times. The Ambani brothers are back – possibly. Mukesh Ambani, head of Indian oil and gas group Reliance Industries, could take on younger brother Anil, boss of Reliance Communications, by staging a return to the telecoms business with a bid in India’s forthcoming mobile auctions. If it happens, it would rekindle long-running sibling rivalry. Reliance Industries’ bid risks being an expensive move in a fiercely competitive industry, Lex reckons. The question is whether chasing pricey telecoms spectrum is the best use of its Rs700bn of gross cash, and, given that it is primarily an energy group, there is also considerable execution risk. A less costly option would be to tie up with an existing 2G operator that could offer voice services alongside Reliance Industries’ data, Lex suggests.
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