Monday shares outlook – Market awaits Carrillion and Tullow Oil updates

1st July 2013

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Contract wins in the UK and Middle East for Carillion have brought some welcome news for the support services group writes Philip Scott. The firm’s joint venture business in the United Arab Emirates has been confirmed as the designer and builder for a £130m luxury hotel in Abu Dhabi. The group delivers its interim management statement on Wednesday and investors will be hoping that trading remains in line with expectations and will be looking for comments on the prospects for more new business.

Sheridan Admans, investment research manager at stockbrokers The Share Centre says: “Difficult market conditions in 2013 have now been factored in, so any outlook for next year, along with views on its international operations, will be worth noting. There has also been pressure on margins and this will be another area for investors to focus on.”

Over the past year its share price is up by 3 per cent but down by 12 per cent over six months. Admans rates the stock as a ‘hold’ while data website Digital Look has the broker consensus as ‘neutral’ to ‘buy’.

Keith Bowman, equities analyst at Hargreaves Lansdown Stockbrokers say: “Carillion currently has a very attractive dividend yield of some 6 per cent. It has been disappointing short-term and its peer Balfour Beatty recently issued a profit warning. Construction is still a difficult and challenging area but the support services aspect of the business is a primary driver and consensus rates it as a ‘strong hold’.”

Also updating the market this week with a trading statement is Tullow Oil. The oil and gas exploration and production group has had a very tough time this year, with its shares down by 30 per cent over the past 12 months, following some disappointing testing results. However, these results should not influence the outcome of further drill tests which investors will be looking for updates on. Investors will also want to hear about production estimates, especially from its Jubilee field says Admans, who lists the group as a ‘buy’. The broker consensus from Digital Look is also positive, at ‘strong buy’.

Bowman says: “The consensus is positive rating the stock as a ‘buy’. It is certainly down from where it was last year in terms of its share price but recent exploration news has been somewhat disappointing and weakness in the oil price has not helped. But the broader background is positive with its strong presence in Africa for example. Longer term it is still in favour.”

One of Admans top picks right now is technology hardware and equipment corporation Spirent Communications.

He says: “Spirent Communication’s long term prospects look attractive given the seemingly ever increasing demand for data, which is Spirent’s core business. The thirst for data services is being driven by the increasing sales of smartphones and tablet computers. As these gadgets become more powerful, applications become more sophisticated and use up more data. The shorter term picture has been clouded by profit warnings from rival companies and the group’s first quarter revenues for 2013 falling short of expectations.”

Bowman says: “The broader consensus is positive but the group has had some challenges in the near-term.” The firm’s shares have dipped by 12 per cent over the past year but Admans sees the dip in the share price as a buying opportunity for investors. He says: “The longer term fundamentals remain intact and the rapid evolution of communications technology still presents significant opportunities .There is increasing demand from corporations, who in these frugal times are still investing in mobile data and Cloud computing services and also require the associated testing and security services.”

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