London afternoon: Public sector gloom lifts a little

14th Sep 2010 14:11

The afternoon session has been much like the morning one with Footsie drifting sideways. There has been some focus on companies that rely, in part, on contracts from the public sector, and the feeling is that the worries about the government tap being turned off may have been overdone. Telecoms firm Cable&Wireless Worldwide has convinced the government to spend £82m on a five and a half year global telecoms framework contract. The largely UK focused part of the old Cable & Wireless, split off in March, believes the deal with the Foreign & Commonwealth Office (FCO), which also includes a suite of IP services, will pave the way for similar contracts with other government departments.Bus and train group has National Express, meanwhile, has been given a seven month extension on its East Anglia rail franchise. "An extra 6-months of the franchise may only be worth a one-off up to £10m of EBIT [earnings before interest and tax] in fiscal 2011 (i.e. c£7m after tax) vs NatEx.s market cap of £1.3bn," RBS notes, but it "keeps NatEx in the rail game a little longer," buying the company time to repair relationships with the government. KBC Peel Hunt has upgraded its earnings forecast for fiscal 2011 by 6% but is leaving its recommendation unchanged, "because it does not necessarily mean that National Express has a future in rail beyond these extensions." Nevertheless, the broker notes, "there is clearly a return to more normal dialogue [with the government] and this augurs well for the company's potential rehabilitation as a rail provider.News that information technology (IT) outsource CapGemini has signed a memorandum of understanding with the government to cut IT costs has reminded the market that the government is still willing to open the cheque book when needs be. The announcement follows a similar one from Atos Origin recently. CapGemini's sector peer Logica moves higher on the move, as does outsourcing giant Capita.Directors selling shares at chip designer ARM Holdings seems to have put the kybosh on rumours that the company is being sized up as a takeover candidate. The shares are the worst performers among FTSE 100 candidates. In a generally firm mining sector Rio Tinto creeps higher after it said it is spending $803m ramping up the block cave project at its Argyle diamond mine in Western Australia to take advantage of strong demand in emerging markets.A Merrill Lynch downgrade hit TUI Travel. The broker says its stance is less aggressive compared to its peers. Defence group Cobham, though, has got a lift from an upgrade to 'outperform' from 'neutral' by Credit Suisse. Retail giant Marks & Spencer limps into positive territory in the wake of a visit by analysts yesterday to the company's flagship Marble Arch store in London. Investec issued a "hold" recommendation but said it expects the shares to continue to rally ahead of new boss Marc Bolland's strategic review.Fashion store chain Next, however, gets the thumbs down from Societe Generale, which has cut its rating on shares from "hold" to "sell". Department store Debenhams sounded a cautious note on consumer confidence but expects its strategy of lifting margins by selling more of its own label products to result in strong profits. The company saw flat like-for-like sales in the year to 28 August, with a recovery in the last 10 weeks making up for a 1.5% fall throughout the earlier part of the year.Ultra-trendy fashion chain SuperGroup's sales jumped by nearly 60% in the three months to August, as the group expanded both in the UK and abroad, but it was not enough to impress the market. Fund manager Ashmore saw a big hike in profits last year as more money from existing clients meant assets under management increased steadily throughout the 12 months. The emerging markets specialist reported pre-tax profits of £217.2m in the year to June, up from £159.8m, on sales of £281.4m, up from £245.7m.Oxford Instruments has soared after stating the strength in research and industrial markets, coupled with the efficiency improvements from the restructuring programme mean underlying interim profits will be not less than £10m.Meatpacker Hilton Food served up a 12% increase in half yearly pre-tax profit and said while challenges remain it expects to meet full year expectations.Shares in Solomon Gold soared after the miner, which is exploring for gold and copper in the Solomon Islands and Australia , said it believes its Fauro Project in the Solomons may have 'world class gold deposit' after initial surface sampling.Another stock going well is Porvair. Shares in the specialist filtration firm stormed ahead after it said full year results are expected to be well ahead of expectations.