Kenmare stock soars up the FTSE 350

By Graeme Dickson
Updated: 09:14 EDT, 9 March 2011

The FTSE rose 12 points since last Wednesday to yesterday's close.

This was on the back of Friday's decent move (which has subsequently pared) following Saudi Arabia's announcement that it can increase the supply of oil if necessary to combat the soaring oil price following Middle East and North African tensions.

On Thursday, Brent crude oil futures rallied as high as $119 a barrel as the Libyan turmoil continued, albeit the loss on the markets was modest thanks to encouraging US durable goods figures, coming in above expectations.

Friday morning was yet another fiasco after the London Stock Exchange suffered a computer glitch, something we are seeing more often since the global financial crisis of 2008/9.

Investors and traders were unable to buy and sell shares for most of the morning until the error was fixed.

The market had already learnt that the Saudi's were willing to cooperate in turning on the taps in order to calm the oil price rise if necessary, something that was seen as a welcome relief to the market by the time trading commenced with an 81 point rally to 6001 on the FTSE 100.

There was a modest fall in share prices on Monday as the US Institute for Supply Management (ISM) figures came in much better than expected that were subsequently neutered by news that civil unrest had spread to Oman, which supply's about one per cent of the world's oil output, causing the Brent crude oil price to edge up to about $114 a barrel.

Yesterday was thin on the ground corporate wise, but with oil prices failing to recede, stocks that are most sensitive to the commodity tumbled sharply as investors wondered just how long it's going to take before the Middle East and North Africa comes back to some semblance of stability. Additionally, North Korea was flexing is rhetorical muscles by announcing that it may engage in warfare against its southern neighbours, although this news seemed overshadowed by the aforementioned events.

The FTSE's uptrend is still just about intact, despite the edgy markets and geo-political tensions, albeit I think this uptrend will be challenged over the next few weeks.

March can be a pivotal month for the UK markets as many investors who are sitting on good gains and want to realise profits (and take advantageous of tax losses) before the end of the tax year, so we could see a bit of selling, especially in light of the world-wide events we are reading and seeing in the media.

I think the next level of support in the FTSE is at 5800 and if the geo-political scene and high oil prices continue to remain in limbo then we might even see as low as 5500-5525. For now the FTSE 100 resistance level is at 6100.

Aggreko: Will benefit from supplying temporary power to the London Olympics

Big mover: How you can profit

The best performing stock in the FTSE 350 last week came from Kenmare Resources (KMR), the ilmenite miner in Northern Mozambique, which is used as a key ingredient in the manufacturing of paints.

The stock soared 17.64 per cent to 42.2p since last Wednesday to yesterday's close.

Davy, the Irish stockbroker had a target price of 45p in a note that was issued back in December, but given that was almost three months ago I doubt that was the sole reason.

JP Morgan had upped its stake to 5.03 per cent back in mid-February, so perhaps it is additional stake building by the investment bank or even wild speculation of a takeover.

This is all conjecture so why it is acting so well against a falling market requires more investigation.

From a fundamental point of view it trades on a 2012 forecast price to earnings multiple of 10.7 and a net gearing of 153 per cent, something which does not inspire as a glaring buying opportunity, unless there are other unforeseen factors at play.

Keep an eye on…

Temporary power supplier Aggreko (AGK) as it scheduled to release its preliminary results on 10 March.

The company, which rents generators to provide temporary power and cooling systems, said in mid-December that fourth-quarter trading had been better than expected but cautioned that financial comparisons next year will be tougher as one-off events that occurred in 2010 such as the FIFA World Cup and Winter Olympics will not occur in 2011.

Aggreko said that it anticipates trading profit in 2011 will be at a similar level to 2010, which would represent strong underlying year-on-year growth given the additional £90 million exceptional revenue in 2010.

Aggreko will benefit going forward from supplying temporary power systems to the European Football Championships and London Olympics in 2012.

It should also win extra business when it supplies gas powered generators, which are cheaper to run compared to the current diesel based products it provides.

The company trades on a forecast 2010 price to earnings ratio of 18.8, falling to 16.7 in 2012 with 29 per cent net gearing: the rating looks a tad high but its niche offering along with the winning of prestigious contracts, thereby creating greater brand awareness will likely keep the stock propped up in the short to medium term.

Highlights from the FTSE 350 over the last week:

• Outsourcing company Capita (CPI) rallied seven per cent to 717p last Thursday after it lifted revenues and profits in the year to December while the bid pipeline stands at a record £4.7 billion.

• Instruments group Spectris (SXS) soared 12 per cent to 1,401p on Friday after profits more than doubled last year and came in much stronger than anticipated.

• Associated British Foods (ABF) the owner of Primark and numerous food brands slipped almost six per cent to 966.5p on Monday after it said its interim results will be in line with expectations, but warned that UK consumer demand is slowing and that rising cotton prices will affect margins.

• Cruise liner company Carnival (CCL) dropped 5.56 per cent yesterday to 2601p following sustained rises in the price of oil as a result of the turmoil in the Middle East.

• Betting company Ladbrokes (LAD) fell 0.8 per cent to 134.5p on rumours that it was lining up an all-share bid for online gaming group 888 Holdings (888.L)