Intel strength gives sale opportunity

Intel (INTC) closed at $20.7, +0.29 (1.2%) last night which gave an opportunity to close the position accumulated from the $19 level. The range bound nature of this semiconductor stock makes other opportunities more enticing in the current market. Any move back below $19.5 would give a re-entry point.

Markets recover strongly as positive sentiment returns

The Dow Jones Industrial Average ended with a 169 point gain, up 1.7%, at 10,268, the Nasdaq Composite Index rose 1.4% to 2,214 whilst the FTSE 100 gained 76 points to 5,244.

The Dow's strongest component by far was Bank of America Corp.(BAC ) whose shares rose nearly 5% after it reported "significant gains" in the number of modified mortgages it handles through the government's Home Affordable Modification Program. Also, it reported better payment performance on its credit card loans last month.Sentiment was further helped in the financial sector by better than expected earnings from Barclays (BARC) which drove a 6.8% to £2.94 in the U.K., whilst its American depositary shares soared 13.7%.

The dollar fell as investors took on risk as fears about the impact of the potential default of Greece on the wider European economy ebbed. That helped the prices of commodity related stocks. Gold ended $29.80 an ounce higher at $1,119.80 an ounce whilst oil rose $3 to $77 a barrel after going below $70 less than 2 weeks ago.

Tensions escalate over Falkland Islands oil

Falkland Battle Lines Form Over Jurassic Oil Search  

Tuesday, 16 February 2010 14:14 - "Falkland Battle Lines Form Over Jurassic Oil Search"

Argentina is driving up exploration costs for U.K. oil companies seeking to drill near the disputed Falkland Islands, escalating tensions over the remote South Atlantic archipelago that led the two countries to war in 1982.

Argentina is forbidding vessels that stop at the Falklands to load cargoes at its ports for the 8,000-mile return journey to Europe. That’s likely to increase costs, Mark Jenkins, a director at shipbroker Simpson Spence & Young Ltd. said in an interview. Voyages “will be more expensive,” he said.

Argentina summoned U.K. embassy officials to issue its “most energetic protest against the imminent start of drilling” near the Falklands, known in Argentina as Las Malvinas, on Feb. 2. London-based Desire Petroleum Plc, which plans to start drilling offshore the islands this month, fell 4.68 percent in two days after Argentina said Feb. 11 it had refused to let the Thor Leader cargo ship leave a river port.

“The government wants to signal that anyone who is collaborating with the Malvinas on any projects won’t be welcome to Argentina,” Federico Thomsen, 53, who heads political and economic researcher E.F. Thomsen in Buenos Aires, said in a Feb. 15 telephone interview. “It would be better for Argentina to try to integrate and participate more in global trade.”

First Exploration
Desire will start the first exploratory drilling in Falkland Island waters since 1998, when companies including Royal Dutch Shell Plc abandoned the search because they didn’t discover enough oil. Companies including Melbourne-based BHP Billiton Ltd. and Falkland Oil & Gas Ltd., based in London, also plan to start drilling, using the Ocean Guardian rig.

The Ocean Guardian is scheduled to arrive at the Falklands on Feb. 17 at 2p.m., according to Bloomberg ship-tracking data. The rig is being towed by the 73-meter long Maersk Traveller, a tug ship owned by Copenhagen-based AP Moller Maersk - A/S.

“The oil price in ‘98 was $10 a barrel and is now $70-75 a barrel,” Sam Moody, managing director of London-based Rockhopper Exploration Plc, which is leasing the Ocean Guardian after Desire, said in an interview. “We believe we need about 50 million barrels at an oil price of $50 to break even.”

Desire’s Liz prospect has estimated resources of between 45 million and 783 million barrels, according to a report by Senergy Ltd., which specializes in appraisal for oil explorers, released in September 2009 and commissioned by Desire.

Thor Leader
Argentina blocked the Thor Leader from leaving a Techint Group plant after it traveled to the Falkland Islands without Argentine government permission. The company said the ship contained steel pipe that was destined for ports in the Mediterranean, without giving more precise information on the final destination.

A discovery of commercial quantities of oil may cause the share price of Desire to surge as much as 90 percent, Nick Copeman, 39, an analyst with London-based Oriel Securities, said in a Feb. 9 telephone interview.

Desire shares rose 2.25 to 107.5 pounds at 12:38 p.m. in London trading while Rockhopper rose 2 percent to 64.5 pounds and Falkland Oil & Gas shares rose 2.1 percent 156 pounds.

Argentina has repeatedly protested efforts to explore for energy deposits off the islands. In 2007, then President Nestor Kirchner voided a 1995 oil and gas exploration agreement with the U.K. that had been suspended for five years.

‘Sovereign Rights’
“The Foreign Ministry reiterates its sovereign rights over the Malvinas Islands, South Georgia and the South Sandwich Islands and the sea surrounding them, which form a part of its national territory,” Argentina’s Foreign Ministry said Feb. 2. Argentina’s objections won’t affect the islands’ oil licensing or any other policies, said Emma Edwards, a member of the archipelago’s eight-member assembly. “Argentina can continue protesting, but it doesn’t matter,” Edwards, 38, said in a Feb. 4 telephone interview from Port Stanley, the capital. “They’ve been doing this forever.”

There’s no point in Argentina continuing to call on international bodies such as the United Nations and the Organization of American States to press its claims, said Carlos Escude, 61, a foreign policy advisor to Argentina’s Foreign Ministry in 1991 and 1992. Neither has the power to make the U.K. change its stance.

“There is no future in pursuing those options,” Escude said in a Feb. 9 interview from Buenos Aires.

The U.K. government reiterated the Falkland Islands’ right to pursue oil and gas exploration. “We are absolutely clear this is a legitimate business in Falkland Islands waters,” a Foreign and Commonwealth Office spokesman said by e-mail. “Argentine reaction is a matter for the Argentine government. Argentina is an important partner for the U.K.”

Windswept Islands
The development of an oil industry would enable the windswept islands, which now depend on sheep farming and fishing, to diversify its economy, according to Edwards. Some 4,200 people live there, with about 1,700 of them based at the Mount Pleasant military complex.

Oil around the Falklands lies within Jurassic or Triassic layers under the seabed, dating back more than 145 million years. These are deeper than most of the world’s offshore discoveries, according to New York-based Bernstein Research, an investment research company.

Crude oil futures traded at $74.94 a barrel on the New York Mercantile Exchange at 9:31 a.m. London time today. Prices have doubled in the past year.

The price of oil is not the main reason for the lack of success in 1998, Moody said. “The world is a different place and there’s been a huge leap forward in seismic technologies.”

BHP Partnership
A partnership between BHP Billiton and Falkland Oil & Gas is seeking a second rig to drill in another offshore area, Tim Bushell, 50, chief executive of Falklands Oil & Gas, said in a Jan. 29 interview from London. Ruben Yogarajah, a BHP spokesperson in London, declined to comment. BHP and Falkland O&G’s Toroa prospect has estimated prospective resources from 380 million to 2.9 billion barrels, Falkland said Nov. 26.

Drilling and exploration in Argentine-controlled waters near the islands is due to start in the second half of the year, according to a Buenos Aires-based spokesman for the Argentine unit of Repsol-YPF SA, who declined to be named because of company policy.

The search will be conducted by a partnership between YPF, as the Argentine arm of Repsol is called, Petroleo Brasileiro SA and Argentina-based Pan American Energy LLC, which is 60 percent owned by BP PLC, while the remaining shares are owned by Argentina’s Bridas Group.

By Rodrigo Orihuela, Morwenna Coniam and Eliana Raszewski. Source: Bloomberg

New Edison research report highlights opportunities for Nighthawk Energy

Edison Investment Research Limited has published a report on Nighthawk Energy (HAWK). Although HAWK is a research client of Edison, the information gives some interesting insights on the company’s prospects and has a 12 month price target of 95p per share ($488m) with potential upside depending on news of £2 per share. This morning HAWK’s share price moved above 29p for the first time in several weeks as anticipation of forthcoming news on Jolly Ranch gathers pace. As this is a substantial holding for Contrarian Investor, this news is particularly pertinent for the portfolio. The undemanding current market capitalisation appears to indicate that the opportunity for significant share price appreciation should not be underestimated if Jolly Ranch and Revere deliver anything close to expectations.



Some highlights from the report:
“The most important in terms of potential scale is the shale oil play, Jolly Ranch, in eastern Colorado. This is broadly analogous to the Bakken plays in Montana and North Dakota and is a potential company maker. In 2009 Schlumberger estimated the P50 oil-in-place fir around 2/3 of the Jolly Ranch project at 1.46 billion barrels of oil equivalent gross. There is the potential for positive news flow in 2010 reflecting the drilling programme, 3d seismic surveys and an anticipated upward trend in production from nominal levels in 2009 to possibly over 1000 barrels a day gross in the coming months. The Revere waterflood project in Kansas/Missouri could also see significant production gains in the 2010 driven by development activity,”


“We see scope for a pre-tax profit of £0.5m on sales revenues of $3.1 m based on an average production rate of 140 boe/d. There is inevitably a degree of uncertainty about the outlook for 2011 and 2012 but we believe Nighthawk should be comfortably profitable at the EBITDA and probably the pre-tax levels based on our production forecasts.”


“As of end of January 2010 we believe the cash balance was about $17m which is adequate to comfortably finance the current development programme”


“We believe the key items of news in 2010 will relate to rising production, particularly at Jolly Ranch. With this in mind, it is likely that there will be regular updates on production probably at the end of each quarter. Near term in late February and March, we also believe that there will be news surrounding the following issues: Jolly Ranch seismic survey results along with potential new drilling targets, Jolly Ranch operational update, Revere operational update including the status of production and resources at Xenia”


“Currently we believe production is running at about 360boe/d gross or approaching 200boe/d net. A sharp increase in production is anticipated in the coming months. This reflects intensifying well test and development work at Jolly Ranch and Revere. We believe that it is possible that gross production across the JV could be running at about 1,250boe/d by end of 2010 and perhaps 1800boe/d by late 2011.”


“Jolly ranch has the potential to be a highly lucrative project. The pre-tax netback could be in the region of $50/bbl after allowing for royalty payments, severance costs and the cost of logistics and lifting. Assuming a cost per vertical well of $1m and production per well of 100b/d, the pre-tax payback period would be 200 days. Allowing for state and federal tax the payback would be 333 days. “


“WTI (West Texas Intermediate) oil would probably have to fall below $35/bbl before a prospective Jolly Ranch project would hit approximate fully accounted break even. On a variable cost basis, break-even might be around $25/bbl.”


“Assuming a similar success rate to that achieved historically (Revere - on the Devon and Buchanan properties), it would not be surprising to see production up to 300bpe/d gross by end 2010 and perhaps 400boe/d by end 2011.


“Since July 2009, Nighthawk has traded between 27p and 48p/share. Trading at around 36p in the second week of January 2010,Nighthawk was up by about 33% from a depressed base at the end of 2008. This was a major underperformance compared with the approximate 122% gain in the AIM Oil and Gas Price index over the same period. The weak performance over the past year or so, we believe, largely reflects heavy cash calls combined with disappointment at the pace of bringing production on stream and defining the reserve base. Oilfield development however, is a time consuming and costly task even in a favourable operating environment and requires patience. Given that production will probably gain momentum in the coming months, investor perceptions could turn considerably more positive during 2010. Ultimately we believe that a decisive change in perceptions will require evidence of a substantial reserve base, as indicated earlier. When this happens or arguably somewhat before, the larger independents are likely to become increasingly interested in Nighthawk/RFP or in particular assets owned by the joint venture. “


“Nighthawk’s current market cap of about £91m is in large part under pinned by the Cisco Springs project plus the investment portfolio alone. The independently assessed 2p reserves of 24mmboe, along with the installed production and logistical infrastructure, should be worth at least $5/boe based on sector data. Allowing another £2m for the portfolio and the implied valuation for the other projects is a mere £12m”.
Source: Edison Investment Feb 15th 2010

Falkland Oil and Gas announce deal on Ocean Guardian Rig

This morning Falkland Oil and Gas (FOGL) announced that it has reached an agreement with
Desire Petroleum (DES) to contract the Ocean Guardian rig to drill the first ever exploration well in the East Falklands Basin on the Toroa prospect, which it expects will be within the first half of 2010.. 
 

Bloomberg story on Falklands Oil

Bloomberg television are running a story this morning on Falkland Oil. With the Ocean Guardian rig due to arrive in the next day or so in the Falklands, the publicity machine for stocks such as Desire Petroleum is gathering steam. Will be an interesting week for holdings, Desire, Falkland Oil and Gas and Borders and Southern Petroleum.

Reckitt Benckiser - certainly not a good time to rush into buying!

Background 
U.K. based Reckitt Benckiser (RB.) was formed from the merger of British company Reckitt and Colman and Dutch Benckiser in December 1999. Bart Becht became CEO of this new company and has been credited for its transformation, focusing on core brands and margin enhancement. He adopted a consumer marketing mindset and increased spend in advertising, focused investment on 17 global power brands (e.g. Finish, Airwick, Nurofen, Gaviscon) and product innovation. 40% of Reckitt Benckiser's 2007 revenues came from products launched within the previous three years. Although traditionally known as a household products company because of brands like dishwasher detergent, Finish, the company now has a relatively large over-the-counter (OTC) medicines business (including brands such as Lemsip, Gaviscon and Senokot) as well as a small, but profitable prescription pharmaceutical division.

In October 2005, Reckitt’s bought the OTC business of Boots Healthcare International (part of the Boots Group), for close to £2 billion, beating of competition from other companies such as GlaxoSmithkline and Novartis. Boots Healthcare International’s portfolio included some strong brands, notably the pain killer Nurofen, Strepsils sore throat lozenges; and the anti-acne brand Clearasil. In January 2008, the company acquired Adams Respiratory Therapeutics, Inc., a U.S. company, for $2.3bn: predominantly for its Mucinex cough business which the company now plans to expand beyond the U.S. where it has a significant share of the market.

Results
Since the formation of Reckitt Benckiser, the financial results delivered have been tremendous. Reckitt’s share’s have risen consistently since 1999 from around £4 to close to £34. Becht’s focus on delivering strong share holder returns have made him one of the best paid CEO’s in the World. The Boots OTC acquisition in 2005 proved to be a master stroke since the company has managed to drive significant growth in the core brands such as Nurofen through innovation e.g. Nurofen Express, cost cutting and a focus on superior marketing.

Reckitt Benckiser continued to deliver strong results last year with underlying sales for 2009 rising 8% year on year. Operating margins rose 1% point to 24.4%. However, the European business only delivered 1% growth to £867 million whilst emerging markets grew 19% to £388 million. The company has set targets in 2010 for net revenue growth of 5% and for operating profit growth of 10%. The company had net cash of £220 million.

Bear Points
Generic competition for Suboxone
In 2009, Reckitt Benckiser's pharmaceutical business grew 66% to £194 million but Becht declined to give 2010 guidance for the division at last week's results due to the uncertain timing of generic competition for its high growth Suboxone (buprenorphine and naloxone) heroin substitute in the US. The product lost “orphan drug” protection in the U.S. in October 2009, although it has recently gained protection in Europe for another 6 years.. In Europe sales are driven by Subutex (buprenorphine) a similar product but lacking the overdose protection of Suboxone. Suboxone in the US now accounts for 18% of group operating profits and around 10 percent of group profits. In the U.S. the drug accounts for half of the pharmaceutical divisions earnings and the North American operation represents two-thirds of total pharma sales.

If a generic version of Suboxone launches in the U.S. sales are expected to decline 80-90% as pricing pressure intensifies. A generic version of Subutex was launched in October 2009 in the U.S. by Roxane (part of Boehringer pharmaceuticals) but this has had relatively limited impact because Suboxone constitutes the majority of U.S. sales currently. The threat of generic Subuxone remains a significant driver of Reckitt’s earnings uncertainty in 2010. To date there has been no application to the Food and Drug Administration (FDA) for a generic copy and the indication for the drug is relatively niche for many generics companies to get involved with. In addition, Reckitt’s may decide to strike a deal with a generic manufacturer to exclusively licence the drug,keeping others competitors at bay for up to a year and holding up prices. The if and when of generic competition remain the $64,000 questions for the company. If generics can be held off then the highly profitable Suboxone business can be kept afloat. The fact that pharmaceuticals account for 10% of group earnings should not be underestimated if generic Suboxone becomes an unwelcome reality for Reckitt Benckiser. It should be noted that other similar companies in the consumer good sector do not have this uncertainty to contend with since they do not have this prescription market exposure.

Retail environment and private label 
The global recession of the last 18 months has tempted consumers to buy cheaper private or own label products as finances have been stretched in many households. Up to this recession there was an intrinsic fear for many shoppers of being seen with cheaper “copies” in their shopping trolleys but the allure of expensive retail brands seem to have diminished and it is not expected that this trend will reverse as private label has shown strong growth. Supermarkets such as Tesco in the U.K. and Walmart in the U.S. have worked hard to improve the quality of their own offerings. A trend in consumers trading down to cheaper products is likely to curtail the growth of Reckitt’s products and this was certainly seen in Europe in 2009 where growth was limited despite significant product innovation.


Pressure from retailers to increase their margins is also intensifying. Large mass market retailers are "encouraging" further investment in in-store brand support or squeezing additional trade margin out of suppliers. Although Reckitt's has strong brands and the customer infrastructure to resist these pressures, maintaining margin is increasingly difficult if the competition decide to capitulate to these demands.

Reducing scope for cost cutting
Reckitt’s “Project Squeeze” to drive gross margin on its product has been effective in driving profitability over the last decade. However the scope for further margin improvement seems unlikely given pressures on raw material costs and the evaporation of further savings from the integration of both Adams and Boots Healthcare International.

Likelihood of acquisition
Reckitt’s healthy cash position and decelerating growth in developed markets makes an acqisition for the company more likely than ever. The company has publicly stated it has an appetite to build its presence in healthcare. However, obvious candidates apart from UK based SSL International (owners of Scholl and Durex) are thin on the ground, particularly in the over-the-counter market. An acquisition of SSL is likely to be expensive and therefore it is felt unlikely to be a target, especially as it has a fragmented portfolio of many brands acquired during the 1990’s. Other targets in the healthcare space are owned by multinationals such as Novartis, J&J and GSK who have not announced intentions to divest assets. A consumer products or household company may be an easier buy but again assets for sale will be premium priced. Given the growth outlook, it seems likely that Reckitt’s will acquire but perhaps at an unpalatable price for investors.

Bull points
Reckitt Benckiser remains a well run company with senior management objectives aligned behind investor’s objectives – namely strong earnings per share growth over the short and long term. Its focus on investing heavily behind their core brands have paid dividends and the emerging markets remain a significant target for future growth. It has a culture of innovation and differentiation and this remains core to the company’s future momentum. The company has a strong balance sheet, cash flow generation and has yield of around 3% which is likely to increase.

The forward price/earnings of Reckitt’s is undemanding at around 16 times 2010 earnings. This is in line with competitors like Procter and Gamble and Unilever.

Summary
Following the 2009 results, several analysts upgraded Reckitt Benckiser and the consensus amongst brokers is either buy or strong buy. Thus expectations are high for continued delivery of strong growth. For Contrarian Investor this gives an opportunity since when expectations are so consistently high, any slip up at all by the company will hit the shares hard. The entry of a generic competitor to Subuxone in the U.S. potentially gives the catalyst for a downward re-rating of this share. At £33.13, there may be still some upward momentum to go if the markets continue to rally especially given the undemanding rating assuming that generic Suboxone competition does not hit in 2010 . However, a short position looks tempting if the shares move beyond £35 in the near future. Watching and waiting for an opportunity to take advantage of a fall. Reckitt Benckiser is an extremely well run business but the environment in which it is operating is getting tougher and the company's healthcare exposure gives it access to a high margin market but with it regulatory and generic risks.

Portfolio Update - February 13th 2010

Falklands Oil stocks (Desire Petroleum DES, Falklands Oil and Gas FOGL, Borders and Southern BOR) - Plenty of controversy in the Falkland Islands this week, with The Thor Leader,a ship carrying pipes made by the Techint group in Argentina being stopped in the southern port of Campana because of allegations by the Argentinian government that it was "illegally" supplying drilling equipment to the Falklands.Techint, the world's biggest producer of seamless steel tubing for the oil industry, denied that the equipment was even bound for the Falklands and said it was going to clients in the Mediterranean. The share prices of DES, FOGL and BOR slid on the news but not alarmingly and were more hurt by the strengthening dollar's impact on the price of oil. The Ocean Guardian rig should arrive in the Falklands next week all being well. Continuing to hold all these stocks and anticipating significant volatility as drilling starts for Desire Petroleum.

Coal of Africa (CZA) - Again broadly flat this week at 130p. No news but an interesting interview with Arcellor Mital in Mining weekly which own a stake in CZA and have been touted as being in the game to take over the company - CEO Nonkululeko Nyembezi-Heita said on Wednesday that the group was redoubling its efforts to secure control of additional iron-ore. The decision was aligned to a group strategy of lowering costs through resource ownership rather than to any security of supply concerns, as there was sufficient domestic capacity available for purchase. "We are not concerned about accessing iron-ore, we are concerned about having control over than iron-ore," she explained, adding that the same was true for coal, which underpinned its decision to invest in Coal of Africa.The company requires 10-million tons of iron-ore yearly to meet its annual nameplate steelmaking capacity of 8-million tons. It is currently able to source more than 9-million of that need on favourable terms, paying market-related prices for the balance. However, if it were to grow its capacity, the company would aim to do so in a way that it matched any steelmaking expansion, with an expansion of its upstream resources. "We are now redoubling efforts to be self-sufficient in iron-ore and coal," Nyembezi-Heita explained, adding that the group's loss of participation rights in Sishen South meant that a new approach would have to be pursued. She indicated that the company was ready to partner with BEE explorers in pursuing new iron-ore opportunities in South Africa. Similarly, it would be keen to participate in projects able to produce hard coking coal. At full capacity, the group would consume about 1,8-million of coal yearly.

Nighthawk Energy (HAWK) - Having broken through the 30p mark last week, HAWK is oscillating between 27p and 30p as further news from the Jolly Ranch project is eagerly awaited by investors. The announcement that Lloyds sold a tranche of their holding is the reason for the downward pressure in recent weeks, and hopefully this overhang of stock is now cleared. Positive news from the company's shale oil project is now needed.

ITV (ITV) - ITV closed down around 50p this week as BSkyB finally placed a 10% holding in the market. The position is now down around 10% from the but price. However, the clearance of the uncertainty about the Sky scale now opens the door for a potential take over of this company sometime in the next 12 months as revenues recover.

GW Pharma (GWP) - Little movement this week as news on the Decentralised Procedures for the EU registration of Sativex is still awaited. This is Contrarian Investor's largest holding given the odds of a successful approval seem signficantly higher than a rejection given the strong clinical trial results in multiple sclerosis patients.

Amgen (AMGN) - Despite another positive clinical trial for osteoporosis drug, Prolia, Amgen slipped this week to close around $56 as the pharma sector as a whole was unloved by investors. Holding for news on EU Prolia approval.

Micron Technology (MU) - Micron stock remained at around the $8.5 level as it announced an acquisition of Numonyx for $1.2 billion in stock (see previous article from earlier in the week). Holding

Intel (INTC) - A rise in Intel to around $20.5 on Friday gave an opportunity to sell some of the position bought at $19.

Micron Tech buys fellow memory chip maker Numonyx

Micron Technology (MU) announced last night that it had agreed to buy NOR flash memory chip maker Numonyx Holdings for $1.27 billion in Micron stock. Micron will issue 140 million shares to the holders of Numonyx (Numonyx is owned 45% by Intel, 49% by STM and 6% by Francisco Partners). Micron will also issue the holders up to an additional 10 million shares depending on the price of MU shares over the 20 trading days ending two days before the deal closes.The deal is expected to close in 3-6 months. Micron expects the deal to be positive to the company on free-cash flow and non-GAAP earnings beginning in fiscal year 2011.

Positive results from Amgen's Prolia in head to head clinical study

Amgen (AMGN) announced after the close last night that a third pivotal phase III clinical trial in 1,900 patients showed that osteoporosis drug, Prolia (denosumab) works better than Novartis's Zometa to delay and reduce the risk of fractures and other bone complications in men with advanced prostate cancer. The shares rose nearly 3% after hours to $59. The company said that the trial met all its primary and secondary goals and that full results would be announced at a medical meeting in June.
The latest clinical trial results make European approval even more likely for Prolia and give the company additional data to submit to the FDA following their request in October 2009 for supplementary information. Given Prolia could be a $3 billion plus drug by 2013, the trial news are an excellent boost for Amgen.

SKY reduces stake in ITV by 10% at 48.5p putting potential floor on price

Last night, BSkyB announced that it would not fight a court ruling ordering it to reduce its stake in ITV, from 17.9 per cent to below 7.5 per cent.for apparently being anti-competitive. The stake was bought to block a takever of ITV by Virgin Media in 2006, a decision much criticised and ultimately referred to the Competition Commission in 2007 by the government. Morgan Stanley sold approximately 10.4 per cent of its stake, or 404 million shares at 48.5p, raising about £196 million. ITV closed last night at 51.3p, down 2.3%. Sky bought a 17.9 per cent stake for £940 million in 2006, writing down the value by £801 million to 20p a share over the past two years.


The book building exercise by Morgan Stanley should reduce the uncertainty hanging over the ITV share price and may ultimately open the door for a future predator. At 51.p, ITV is now down over 10% from my buy point and may be under further pressure today with 10% stake sale being sold for 48.5p. However, downward momentum should now be stemmed. Today's share price action will be interesting and for those not invested in ITV may be a good time to wade into the company.

UK dividends on downward path

Dividends payments by U.K. companies reduced by 15% in 2009, with financial cutting their payments by half as the banking sector collapsed. The yield is now estimated to be 3.4% for the UK FTSE All share for 2010. Oil companies (BP and Shell), tobacco stocks (Imperial and BAT), and pharma (GSK, Astra) dominate the top FTSE 100 dividend payers.

DRAM chip price outlook less rosy for second half 2010

S&P cut their rating Micron Technology (MU) on Friday to Hold from Buy, citing reduced expecations for DRAM memory chip prices in 2010. They reduced earnings per share (EPS) forecast for the August 2010 fiscal year to 76 cents, from 84 cents, and cut their target price to $11, from $13. S&P said “Although we think healthy PC demand will continue to support memory demand and shipments this year, we are cutting back our second half DRAM revenue estimates based on our view of increasing supply from leading competitors and lower ASPs."

Micron finished Friday at $8.70, having slide from close to $11 in the last 2 weeks as worries grow about a potential ramp up in DRAM producton from Samsung. The position in Micron is around a $1 down from its buy point, but will hold for now.

Tech earnings results point to recovery not false dawn

Strong earnings from the large technology bell weathers in the U.S., - Microsoft (MSFT), Intel (INTC), Cisco (CSCO), Google (GOOG) and Amazon (AMZN) have so far failed to drive the bears back into hibernation.

Despite the fact that Cisco Systems posted great results for its January quarter, and provided April quarter guidance that significantly exceeded analyst expectations, the news failed to rejuvenate the U.S. NASDAQ at the back end of last week . CEO John Chambers, traditionally regarded as having a very conservative view on his markets, sounded very positive about Cisco's prospects going into 2010. He said the company was seeing a broad-based recovery across all geographies and product sectors and that it was seeing a continued improvement in business spending..  Chambers said. “Our outstanding Q2 results exceeded our expectations and we believe they provide a clear indication that we are entering the second phase of the economic recovery. During the quarter we saw dramatic across the board acceleration and sequential improvement in our business in almost all areas,”. So if Chambers is telling the markets that things are improving for Cisco, then maybe its time to take note given the company's position in so many core areas of IT spending.

Though risk aversion is increasing, the outlook for the global economy seems to be improving, particularly for the technology sector. Signficant weakness in the Nasdaq, should be seen as buying opportunity for the best in breed stocks including Microsoft, Intel and Cisco.

Portfolio Review of the week - February 6th 2010

A tough week for the Contrarian Investor UK portfolio this week as global markets fell heavily on sovereign debt concerns in countries such as Greece. The DOW Jones Industrials briefly fell as low as 9850 yesterday before staging a strong recovery in the last hour of trading to finish higher and back over the 10,000 level. Unfortunately, some long bets on the DOW were closed out at the lows , which was frustrating given the rebound. As I talk about shortly, the investment thesis for the holdings in the portfolio are robust and news flow is expected for most of the holdings in the coming weeks which should be a catalyst for share price appreciation. A sell off in the market that we have seen in the last 2 weeks is a positive development given we are now back in the “good value” zone after the rises in January looked unsustainable and stretched the prices of many stocks. The portfolio is now positioned for any change to a more positive sentiment.



Coal of Africa (CZA) – Finally the news that has been awaited for the last 4 months came through with the South African Government granting the new mining order for the Vele coking coal project. Although the share price initially responded well with a 23% one day rise to 148p, the large falls in global stock markets throughout the latter part of the week and rumours that fellow Coal stock, GCM, were selling down their holding meant that CZA finished the week at 133p, barely unchanged. Based on fundamentals CZA looks very solid – rising prices for metallurgical and thermal coal, increasing production coming on stream from Mooiplaats and now Vele, the acquisition of NuCoal brings on stream further capacity, good off take agreements with the likes of Arcellor Mittal (who own a stake in Coal of Africa). Continuing to hold.


GW Pharma (GWP) - Remarkably robust given the overall market picture, with a small fall to 87p. Sativex Cannabis spray regulatory approval in Europe in final stages. News expected in Q1 2010.


Falkland Islands Oil Shares (Falklands Oil and Gas (FOGL), Desire Petroleum (DES), Borders and Southern Petroleum (BOR) ) - A strengthening in the U.S. dollar this week due to fears about debt default in Portgual, Spain, Italy and Greece sent commodities into free fall this week with WTI Crude Oil dipping below $70 on Friday (after being above $80 in January). In addition, posturing by the Argentininian government about the ownership of the Falklands added to the general uncertainty. The Ocean Guardian Rig hired by Desire Petroleum is due to arrive in the Falklands in the next week or so with drilling due to start mid-February. News from Falklands Oil and Gas (which has a farm in deal with BHP Billiton) on a potential sharing of Ocean Guardian is expected in the next couple of weeks with further news on a deep water rig needed to drill in the deeper waters of the South Falklands basin also on the horizon. Despite heavy falls in the Falklands Islands shares this week, with the rush out of oil stocks and riskier assets, imminent news from the drilling campaign should drive prices higher.


ITV (ITV) – TV company, ITV dropped to 53p this week on the general market weakness. The outlook for TV revenues is solid in 2010 and the management team of Crozier and Norman is looking to streamline the business and review the ongoing strategy of the business. Holding.


Nighthawk Energy (HAWK) – HAWK broke through the long term resistance of 30p this week on the weakness in the oil price and now stands at lows last seen during the March 2009 lows at 27p. Despite reasonably positive news from the Jolly Ranch project last week, and confirmation that substantial news on the field would be released this week, the shares continue to take a tumble. The fundamental investment thesis for HAWK, namely the Jolly Ranch and Revere prospects is unchanged. Though Contrarian Investor UK is disappointed in the short term performance, I will continue to hold as news flow does not support this continued erosion in the share price.


Amgen (AMGN) - The stock price fell from close to $60 earlier in the week to finish at $57.5 as sentiment on pharma stocks was not helped by disappointing results from Pfizer (PFE) and Astra Zeneca (AZN). News on osteoporosis drug, Prolia, is expected in Q1 or early Q2. Holding.


Intel (INTC) and Micron (MU) – Semi conductor stocks took a hammering early in the week with Micron falling close to $8 and Intel dipping below $19. Despite the short term weakness, long term fundamentals look positive for chips consumption in both the consumer and business enterprise segments.