Date: Wednesday 15 May 2013
LONDON (ShareCast) - Icap is fighting to restructure and survive. Hence the very positive market reaction on Tuesday when it announced that it would beat its target for cost savings. Far more important even, traders breathed a sigh of relief that it did not cut its dividend payment. Nevertheless, a 12 per cent revenue decline alongside pre-tax profits off by 20 per cent at 284m pounds shows how difficult it is to align costs with declining markets. In addition, there are pending regulatory changes the impact of which, positive or negative, is hard to discern. Icap has been dragged into the Libor scandal, and if found guilty, could face a fine of up to 25m dollars. "The yield of 6.5 per cent may look attractive, but, given the uncertainties, I would be in no mood to chase," The Times´s Tempus says.
Engineering support services firm Babcock has strong growth potential and broadening scope, as well as a solid bid pipeline and order book, which makes the support services giant a buy, says The Daily Telegraph´s Questor team. Yes, the defence sector continues to pose uncertainty, at a time when budgets are shrinking. However, momentum has been building and the Ministry of Defence is looking to 'ramp-up' private sector involvement. More important, however, are the company´s nuclear ambitions, through its recently inked partnerships with Hitachi and EdF, its plans to grow its decomissioning business and its expansion plans overseas.
After the initial spike higher shares of Severn Trent gave back some ground, reflecting investors´ doubts about whether a deal will be done. A transaction is indeed doable but UK regulated utility assets are dearer than they look. In particular, note must be taken that water companies are halfway through a regulatory cycle; the next one starts in 2015 and may be less generous. Generating the kind of returns that would justify the going rate for UK water assets – about a third of their regulated asset base – will be tough, writes the FT´s Lex column.
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