TV set top maker picks up the pace

By Graeme Dickson
Updated: 07:37 EDT, 16 June 2011

The FTSE fell 65 points or 1.09 per cent since last Wednesday to yesterday's close of 5858, again largely attributed to concerns about Greece's debt issues but also about Italy's credit rating.

Last Thursday the FTSE added 32 points to 5956, buoyed by the US weekly jobless claims showing fewer claimants than the week before.

The following day the blue chip index slipped 7.5 points to 5948 after the credit rating agency Fitch downgraded Greece's debt rating by three notches to B+.

Additionally the US leading economic indicators came in at 0.3 per cent for April, slightly worse than expected.

On Monday the FTSE slumped, falling 112 points to 5836 after news emerged over the weekend that Standard & Poor, another credit rating agency, downgraded Italy's debt status to negative from stable, citing that political gridlock in the country may hamper the nation's ability to enforce productivity enhancing reforms.

Yesterday the index staged a modest recovery with the FTSE rising 22 points to 5858 after the German business climate index showed a better than expected reading.

The FTSE on Monday broke the 5850 support level, but really needs to stay underneath it for a few days to see if this leads to a breakdown from the sideways trading channel of 5850-6100.

If we do see a day or two underneath 5850, then 5600 looks like the obvious level to retest.

Otherwise, despite the seemingly increased negativity over the last few weeks, the fact is that the markets have absorbed pessimistic outlooks over the last two years and still managed to go up.

I would not be surprised to see the index trading closer to 6000-6100 once the dust has settled.

Big mover: How you can profit

It was not a significant week for movers and shakers in the FTSE 350, but one stock you might want to put on your watch-list is that of Pace (PIC), the set top box manufacturer for subscription TV, telephony and broadband.

The stock has risen 10.5 per cent in the last week to close yesterday at 102.8p

A few weeks back I highlighted it warned on profits owing to a bottleneck in the supply chain following the Japanese earthquake.

I mentioned at 98p that it could be vulnerable to a dead-cat bounce and possibly to a bid from private equity.

Rumours were going through various blogs that the company might be stalked by Motorola although a number of lesser known names were also thrown into the mix.

The stock, in which its high for the last 52 weeks is at 231p, trades on a price to earnings ratio of just 4.7 which takes into account many new forecasts that have been downgraded since the last profit warning.

That does seem a bit too cheap to ignore and it looks like there might be some credibility to rumours that the company is being eyed by a number of suitors.

Also there could be a small exit by short sellers as the stock approaches the ex-dividend date of 8 June, albeit the pay-out isn't that much. Well at the very least, it is one to watch, even if it is for 'academic interest'.

Keep an eye on…

Another company that has been subject to a high level of trading activity on the grounds of takeover speculation is that of Northumbrian Water (NWG).

The company is scheduled to release its preliminary results on Wednesday 1 June, next week with consensus forecasts of earnings per share to come in at circa 25.4p.

The utility company stated a few months back that trading is in line with views, even if you take into account that it will have to pay higher interest charges, to the tune of approximately £20 million extra due to the RPI Index-Linked loans.

The company trades on a price to earnings ratio of 14.4 with a yield of 3.72 per cent. For 2012 the multiple is forecast to fall to 11.6 and the yield to rise to 4.2 per cent if all goes to plan.

It's worth noting that the Ontario Teachers' Pension Plan owns 27 per cent of the stock and some expect the company to be attractive as a takeover target.

Goldman Sachs highlighted a few months back that a leveraged buy-out of Northumbrian Water could make sense up to 472p, although JP Morgan has recently poured cold water on the rumours by lowering its rating from overweight to neutral.

At 356p, the shares are right at the top of its 52 week trading range: it will need the rumours or a confirmation of a takeover in my view, to sustain the upward trend, otherwise in the short term the likelihood is that the shares will drift.

Highlights from the FTSE 350 over the last week include:

- On Thursday payment protection company CPP (CPP), the firm that is subject to an FSA investigation, jumped 15 per cent to 138p after it launched a new product.

- Oil & Gas engineer Lamprell (LAM) added 9.62 per cent after it confirmed the acquisition proposal of Emirates based Maritime Industrial Services for $336.1 million (£208 million). 

- On Friday IT solutions provider MicroFocus (MCRO) jumped 7.79 per cent after it confirmed it had received several approaches namely Advent Capital and Bain Capital with rumours that the price for the bid will be between 425-450p a share.

- Coincidently software solutions company to the financial services and healthcare sectors, Misys (MSY), was up one per cent to 360p, on talk that it too was subject to a prospective bid at 425-450p a share.

- Outsourcing service provider Mitie Group (MTO) gained 4.95 per cent in a poor day on the stock market, to 220.4p with pre-tax profits up 8.9 per cent to £86.8 million citing that it is benefitting from government and company cut-backs, who in turn are resorting to outsourcing measures.

- Yesterday polymer manufacturer Victrex (VCT) jumped 7.71 per cent to 1509p after its interim results came good while its outlook provided a promising future.

- BG Group (BG.) firmed 2.46 per cent to 1376p, on yet another rumour it is being eyed up, possibly to Petrobras, Royal Dutch Shell or to Russian interests.