Battle of the bears and bulls developing

By Graeme Dickson
Updated: 12:53 EDT, 11 August 2010

There is a genuine tussle developing between the bulls and the bears of the stock market at the moment.

The bulls will point towards the generally well-received second quarter results attained by US corporates.

The bears will cite relatively poor economic data, most notably the Non-Farm Payrolls which came in far worse than expected last Friday.

The FTSE 100 fell just 10 points between last Wednesday and yesterday's close, finishing Tuesday at 5,376. So which stock has made the biggest move this week?

Big mover of the week: the inside track

A few weeks ago, I mentioned that trading Connaught (CNT), the social housing support services group was for gamblers only, whether you are long or short.

Given Connaught was down 58 per cent on the week at 13.5p yesterday (and down 96 per cent since the beginning of the year) the gamble would have paid off for the short-sellers, while any bottom-fishers would be nursing severe losses.

One of the reasons it's fallen so much is that it admitted it only likely to break-even at best when it releases its preliminary results for this fiscal year, ending 31 August 2010. Additionally, the company said it will have to make significant write-downs on the value of its existing assets.

There is a real concern that the company will have to do a debt for equity swap, possibly with the Government. If the company goes into bankruptcy, it has been claimed social housing will be 'left in a mess'.

The question is what price will the swap be at? Will there be anything left for existing shareholders? If the government doesn't help, can the private sector step-in? Will it go bust?

All these questions are likely to be asked by shareholders. There is always a chance that an opportunistic bid might come along and rescue the company, but it seems unlikely. For now I would continue to avoid as there are easier situations to trade.

Keep your eye on...

EnQuest (ENQ), the North Sea explorer spun off from Petrofac (PFC), is scheduled to release its interims next Tuesday (17 August).

Last year the company produced 13,600 barrels of oil or equivalent per day (BOEPD). This is expected to be ramped up to 18,000 BOEPD for 2010.

EnQuest: The North sea explorer looking to produce 18,000 barrels of oil per day

EnQuest has 80 million proven and probable reserves, but the fields in which it has a working interest could have a much as 1.668 billion barrels of original oil. Much of this figure will have to be whittled down due to non-extractable or poor quality oil.

The board of directors are littered with executives with blue-chip career histories such as Petrofac, Talisman Energy, Lehman Brothers and Cairn Energy. The company's aim is to become the leading independent oil and gas producers in the UK Continental Shelf.

Recently there have been reports of a bid for EnQuest, which might explain the reason price action.

I am not going to douse any flames on the story, as the company is a relative new float. The interim results should be more revealing.

But before making any move, try to ascertain what profits the company can generate for its full fiscal year and what the outlook will be going forward.

Highlights and gossip from the week included:

• Insurer Aviva (AV.) rallied 7.18 per cent to 394.30p after reporting last Thursday a better-than-expected 21 per cent rise in profits at the interim stage.

• On the same day, defence and aerospace manufacturer Cobham (COB) fell 6.6 per cent to 224.1p. The company announced a fall in its half-year profits due to delays in defence contracts and weakness in some of its commercial operations.

• Hotel group Millennium & Copthorne (MLC) gained 7.14 per cent last Thursday to close at 510p after its interim profits jumped 65 per cent, following a recovery in the sector.

• Last Friday, after Old Mutual (OML) released its interim results, rumours were abound that it was likely to sell its 54 per cent stake in NedBank to Standard Chartered (STAN) or Barclays (BARC). The shares closed up less than one per cent on the day.

• Satellite group Inmarsat (ISAT) leapt four per cent at 741.50p after announcing a sharp increase in interim profits. This was partly helped by an increase in its broadband service from the countries such as Haiti and Chile, where their normal lines of communication were severely disrupted due to the earthquakes.

• Telecoms testing equipment company Spirent (SPT) climbed six per cent on Monday to close at 132.8p, after a favourable broker comment emerged following the interim results announced last Thursday.

• In what now seems the false signal of the week, holiday operator TUI Travel (TT.) rallied 4.25 per cent to close at 225.6p on the same day ahead of its scheduled trading statement issued yesterday.

• Yesterday (Tuesday), TUI Travel fell 10 per cent to 203p after it warned profits for this year will be at the low end of forecasts. It blamed good weather in the UK and the negative impact of the Budget. Thomas Cook (TCG) fell 7.3 per cent in sympathy with Tui to 183.9p.

• Oil explorer/producer Cairn Energy (CNE) fell a penny to 460p despite widespread rumours of a 700p a share bid being lined up as a friendly takeover.