Good Morning,
Pressure Technologies (PRES) gave an update
on trading and notification of interim results. It’s dire, with a
material deterioration in the immediate prospects for the Group's Precision
Machined Components and Engineered Products divisions. Worse, the Alternative
Energy Division has now been completed but the division has experienced delays
in securing new orders which will impact its performance in the current
year. EMC: PRES December 14 (in addition see PRES Labels).
With limited liabilities and cash at circa £5m the company
is not going to go bust immediately, but in the absence of orders across the
entire company the prospects are not looking good. After their update in
February, things have clearly got worse. Valued at around £30M and a tightly
held stock, there's likely to be limited support in the short-term, save for
some speculative buying (knife catching). Simply put, any improvement in their
divisions will be hit or miss.
No doubt the technical analysers will be looking at the gap
between 270 and 211 overnight, however the price appears to be overvalued as a
result of today's announcement. The company has great potential for holders,
simply not at this price with too many unknown risks, and that includes the
businesses inability to forecast future revenue in light of the oil tumble.
PRES is a well-run company, with an unfortunate set of events working against
it, it will be overly punished.
Today, Vedanta's (VED)'s update is an example why VED's structure is so
difficult (perhaps even complex) that it needs to transfer equity between
subsidiaries in order to enable "cash" to target the required
resource. VED's structure appears to have limited tax benefits, so one would be
wise to ask why exactly is the structure so complex. (See below: Vedanta). In
simple terms it’s a corporate dinosaur with little in the way of synergies
between entities. Today's actions appears to be "robbing Peter to pay
Paul."
The "paradigmatic shift in iron ore" is likely to
be played out very soon. With gossip a joint Baosteel and
CITIC Group (China International Trust and Investment Corporation) "are
likely to gain full FIRB (Foreign Investment Review Board) approval" for
a direct investment in FMG. Expect some nationalistic issues about Chinese
investments to be negative for Australia (close the stable door after the horse
has bolted).
China's selection of 'favourites' in the iron ore sector is
a shrewd move. Not only does it weaken BLT/RIO's hold on price (if there was
any left), and place a long-term low cost (ish) supply in their hands, it
maintains a significant diversity in the market. As evidenced by the
backtracking by the China's on view on the Valemaxes fleet with the recent
deal with the Chinese. A complete backtrack on the part of the Chinese.
(See: Aquila Resources BaoSteel deal)
Johnson Matthey's (JMAT) results are better than envisaged,
but still overvalued. JMAT has been a technical short off 3475 for near 6
months. Irrespective, the revenues are down circa 10% (allegedly as expected)
which contradicts the sell-off this morning.
Stripping out the sale of the gold and silver refining
business, profit was a head at £422.8M (£406.6M), near 4% on the previous year.
With such a "positive year" despite a reduction in expenditure net
debt was up £265.2 million to £994.4 million (net debt to £1,037.6 million if
you include pension deficit and bonds).
The divi-will support the share price, although 2% is
supported only in part by the sale of refining business. Debt on the increase
there are a lot of assumptions on the positive outlook that contradict the
wider vehicle market including trucks including fleet age cycles.
With the HDD (for those layman's: Heavy Duty Design) trucks
being in a positive renewal cycle, JMAT will benefit as the older fleets
are being replaced especially in America with economic 'recovery.' Remember,
fleet renewal cycles are being run for longer, will JMAT be impacted as
the fleet renewal cycle peaks to the current level but in the short-term will
benefit.
Can growth keep pace with the increased age of heavy duty
trucks in the longer term is another matter. Perhaps the answer is a reduced seasonality which will assist manufacturers in planning. This of course is contrast to the
average age of cars declining by 12.5% over a 14 year period. No change in the
view that there will be limited growth and the potential for adverse currency
movements. So banking profits on a technical basis, it’s wise to review the
position.
Atb Fraser
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