Investors Corner
The Market
UK blue chips ended a volatile session on Friday modestly higher,
at its peak for the day and well above early lows. Falls from
technology issues in reaction to Intel's after-hours warning
were countered by "old economy" switching and Wall Street's
stabilisation after a big opening mark-down. At the Friday close,
the FTSE 100 index was 6.7 points firmer at 6,205.9 points,
its high for the session and well above the day's low of 6,075.1
struck at 8.22 am. However, all the broader FTSE indices remained
depressed, with the techMARK 100 index off 51.21 points at 3,646.05
in reaction to Nasdaq's slide. Volume in London was solid, boosted
again by strong trading in market heavyweight Vodafone (350
million shares), with 1.7574 billion shares changing hands in
125,939 transactions.
UK blue chips started the last session of a depressing week
in very dull fashion, dropping back sharply as technology issues
took a hammering in response to an overnight decline by the
Nasdaq composite index, and - more importantly - a shock after-hours
revenues warning from Intel. US semiconductor giant Intel saw
its shares plunge by more than 20 per cent in after-hours trading
on Wall Street after the group warned that its third quarter
revenues will be below market expectations due to weaker European
demand.
The warning had a major impact on UK technology issues, although
the direct correlation was far from clear, with Intel more focused
on the PC market than any of its European chip rivals, such
as ARM Holdings, which in turn focus much of their sales interest
in the US. With no major economic data released to provide any
relief to a market already weighed down by worries over the
inflationary impact of spiralling crude price, and uncertainties
about their affect on corporate earnings, the mood in London
was very cautious.
Nevertheless, as the session progressed some bargain hunting
and the defensive attractions of "old economy" issues helped
to bring the FTSE 100 index slowly back from its worst levels.
Although the mood on Wall Street was very depressed in the wake
of the Intel shock, Wall Street shares did manage to ease off
their opening lows, helping UK blue chips to rally. By London's
close, the DJIA was near its best levels for the session so
far, though still 100.54 points lower at 10,664.98, with the
Nasdaq index also well above its worst, down 111.50 points at
3,717.37.
"Old economy" issues provided the main support for the FTSE
100 index, propelled back by switching from under pressure technology
issues. Selected financial stocks remained in demand, with Alliance
& Leicester topping the blue chip gainers' list on a resurgence
of bid talk. Credit Lyonnais Securities also repeated its "buy"
rating on the stock with an 800 pence shares price target. Alliance
& Leicester shares added 45 pence at 568 pence.
Bank of Scotland was again lifted by rumours about a possible
750 pence per share take-over move for the group - its shares
added 14 pence at 610 pence, with the group also set to report
its interim results next week. Halifax, up 41-1/2 pence at 571-1/2
pence, was talked of as a possible bidder for Bank of Scotland.
Elsewhere, Invensys bucked the technology downtrend on rumours
of a 200 pence per share break-up bid for the group from KKR
of the US, and talk that chief executive Allen Yurko is set
to be replaced by chief operating officer Jim Mueller. Invensys
poured cold water on the bid talk, by denying it has had any
contact "whatsoever" with KKR. Invensys shares eased back from
earlier highs, but still added seven pence at 135 pence - the
stock also rallied after recent talk of selling by a US investor.
Logica
Logica, the IT software and services group, reported an increase
in revenues of 28 per cent to £847.4 million and profits of
£98.1 million for the year to 30 June. Margins were up at 11.5
per cent from 9.6 per cent in 1999. Logica's chairman stated
"1999/00 was another year of strong financial performance for
Logica, with EPS up 43 per cent and revenues 28 per cent (32
per cent at constant exchange rates). Last year's order intake
increase of 40 per cent gives us a strong start to the current
year, particularly in the Telecoms and Energy & Utilities sectors.
Overall, market conditions remain positive and in this environment,
Logica's board remains confident of delivering superior performance
for the year ahead. The group's UK operations performed strongly,
turnover increased by 35 per cent to £382.9 million and margins
increased to 11.6 per cent giving an operating profit increase
of 47 per cent to £44.4 million. This success was driven by
winning some of the largest, mission-critical contracts signed
in the UK information technology industry during the year.
In Continental Europe, Logica's focus continues to be on leveraging
Logica's global strengths in its key market sectors. During
the year the management structure has been changed to achieve
greater synergy and technology transfer, between the fast-growing,
market-leading business units in the UK and its businesses in
Continental Europe.
Meanwhile, in North America Logica continues to focus the business
on its global strengths and capabilities, while reducing overhead
expenses to maintain profitability. In Asia, revenue increased
by 99 per cent to £38.1 million. Historically, Logica's business
in the region has been
relatively small but is of increasing significance as it invested
in these strategically important markets.
The group's Mobile Networks business had an excellent year,
increasing revenues by 100 per cent (115 per cent at constant
exchange rates) and operating profits by 166 per cent (186 per
cent at constant exchange rates). Margins increased from 13.1
per cent to 17.5 per cent. Capital expenditure increased by
£7.9 million to £27.2 million as Logica fitted out major new
premises in the Thames valley and continued to invest in the
growth of its Mobile Networks unit.
Logica's order intake for the year was more than £1 billion,
a 40 per cent increase. This has given the company a strong
start to the current year, particularly in the telecoms, energy
and utility sectors. Overall, market conditions remain positive
and in this environment, Logica's board remains confident of
delivering superior performance in the year ahead.
Enterprise Oil
Enterprise Oil, the oil exploration and production group, reported
a staggering 684 per cent increase in pre-tax profits to £456.5
million for the half-year to 30 June. The company announced
significant progress in new core areas of US Gulf of Mexico,
Brazil and further exploration and appraisal success in Norway,
Ireland and the US.
Post tax profits for the first half of 2000 were a result not
just of stronger oil prices, but also the 40 per cent increase
in production over the corresponding period last year. A realised
oil price of over $28 per barrel and output at the group's highest
level yet at 277,056 barrels of oil equivalent per day proved
a strong combination. The resulting cash flow has enabled the
group to reduce gearing from 80 per cent at the end of 1999
to 45 per cent at the end of June 2000, with expenditure held
at similar levels to last year.
Enterprise Oil continues to make progress in its three established
core areas, the UK and Ireland, Norway and Denmark, and Italy,
and has reported the growing significance of two emerging core
areas, the US Gulf of Mexico and Brazil. In the US Gulf of Mexico,
the appraisal of the Llano discovery was successful, Enterprise
has purchased R&B Falcon Corp's exploration and production assets
mainly comprising the Boomvang development, and has gained access
to new exploration acreage.
In Brazil, Enterprise is establishing itself with the joint
development of the Bijupira and Salema fields, and potentially
highly valuable exploration acreage. It is likely that levels
of gearing at the end of 2000, allowing for redemption of the
outstanding US preference shares, will return to about the level
existing at the end of 1997 before the collapse in the oil price
and a heavy investment cycle.
Enterpise Oil's cost of sales per barrel in the first half
of 2000, excluding an exceptional item, remained within its
£5.50 target at £5.47. Exploration write-off was 63 per cent,
and return on fixed assets (ROFA) was 32.5 per cent on an annualised
basis. The group intends to redeem its US cumulative dollar
preference shares next month in order to reduce the cost of
capital.
On the Garden Banks 161 field performance sufficiently failed
to meet expectations and the group felt it prudent to write
off the carrying value of its investment of £43 million. This
write-down, while disappointing, demonstrated the importance
of a broad portfolio that can absorb the inevitable variations
in asset performance. That set-back was more than compensated
for by high levels of production from Jotun, and Pierce.
Elsewhere, the Valhall Waterflood project and the Skene field
are set to contribute to Enterprise's output in the medium term.
Discoveries in Norway and the further successful appraisal of
Llano and Corrib, together with increased activity on the Clair
project, also point to longer term potential within the group's
portfolio. This should be further enhanced with the bulk of
exploration activity to come in the second half, including wells
in the UK, Norway, Italy, US Gulf of Mexico, Greece, and Brazil.
Production in the first half of 2000 reached the highest level
yet for the group at 277,056 boepd, an increase of 40 per cent
on the corresponding period last year (197,235 boepd). This
increase stemmed largely from the Pierce field in the UK, operated
by Enterprise, and Jotun in Norway. Production from the Garden
Banks 161 and Banff fields remained lower than anticipated.
Oil and natural gas liquids (NGLs) contributed 87 per cent of
this period's production, gas 13 per cent.
Pierce, Enterprise's second operated field development, continues
to give a superior performance. Following a de-bottlenecking
process in February 2000 the field's production capacity was
increased, and it is currently producing at rates of around
60,000 barrels of oil per day. The Jotun field in Norway has
similarly achieved an excellent operational record and reached
production rates as high as 140,000 barrels of oil per day,
considerably in excess of those originally forecast of 89,000
bopd.
Analysts remain impressed by the company's sound portfolio
and financial foundations.
Please note that the value of investments, and income (if any)
yeilded by them, may fall as well as rise, and you may not recover
the full amount of your original investment. Past performance
is not necessarily a guide to the future.
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