Baker Street, London -- Traders took solace today from some soothing words about the pysche of American consumers. These came from the lips of a certain Mr Alan Greenspan. He happens to be the US Federal Reserve Chairman, with the task of setting American interest rates. Many market followers now think these will remain the same in the short term, reassuring global markets. Thus shares throughout the world enjoyed a buoyant day. The US markets opened significantly ahead this afternoon, with the NASDAQ composite index showing a 3% gain, its second rise of this level in a row. Many investors will be smiling over the weekend.
Nearly four-fifths of the FTSE 100 posted gains today. The most impressive came from financial stocks. With blue skies ahead for interest rates in the immediate future, banks relaxed, knowing their short term profits looked relatively safe.
This sentiment, combined with Wednesday's strong third quarter results, lifted fund manager Amvescap (LSE: AVZ) by a staggering 53.5p, or 10.9%, to 544p. Yesterday the shares shot up 12.1%! The company has strong exposure to US stocks. No wonder the Wise are so keen to keep their money management franchise, with share price performances like this.
On the domestic front financiers continued to react to the news earlier in the week that NatWest (LSE: NWB) has rebuffed the Bank of Scotland's (LSE: BSCT) hostile £21b bid. The latter jumped up 34p, or 4.7%, to 759p. TMF Nigel reviewed this complicated story in today's Lunchbox. Irish Life & Permanent are apparently circling NatWest's Ulster Bank arm, which the high street giant has said it wants to flog.
However, the most startling rise came from high street rival Lloyds TSB(LSE: LLOY). The group, which has recently entered the Qualiport fold, moved up an impressive 46p, or 5.8%, to 841.5p. And following a strong showing by Hong Kong's Hang Seng index last night, Standard Chartered (LSE: STAN), which has significant holdings in the former colony, improved 46.5p, or 5.8%, to 853.5p.
Also Alliance & Leicester (LSE: AL.) rose 15p, or 1.7%, to 888p on speculation that the former building society might merge with the Woolwich (LSE: WWH).
Bargain hunters dived into go-go cement maker Blue Circle(LSE: BCI), which made a profit warning yesterday. The shares improved 13p, or 4.8%, to 282.5p. This is still 53.5p below their 336p level of two days ago.
Similarly nobody could explain the 20.75p, or 7.5%, leap in Invensys' (LSE: MSYS) share price to 299p. The metal basher does have a bit of debt, which might have got cheaper to service, with the prospect of steady interest rates, rather than rising ones.
Top technology stocks were also in demand following NASDAQ's recovery last night. ARM Holdings' (LSE: ARM) shares shot up 216.5p, or 14.3%, to 1728p. And IT services group Misys (LSE: MSY) rose 39.5p, or 8.4%, to 508p.
Golf club operator Clubhaus (LSE: CHA) has bought three more golf courses for £12.2m. However, the illiquid stock only chipped up 1.5p, or 2.1%, to 72.5p. Rival PGA European Tour Courses(LSE: PGA) reported a doubling of pre-tax profits to £1.06m at the interim stage. The shares moved forward 6p, or 16.44%, to 42.5p.
On such a bullish day there were few bears in evidence to spoil the show. Only a handful of blue chip stocks dropped by more than 3%. Hotel and leisure operators were out of favour. Brewer Bass (LSE: BASS) fell 26.5p, or 3.8%, to 668.5p. Hotelier-cum-bookmaker the Hilton Group (LSE: HG.) dropped 6.5p, or 3.4%, to 185.5p.
Another group with hotel interests, Granada (LSE: GAA), shed 18.5p, or 3.7%, to 481p. This had more to do with the company's broadcasting venture with Carlton (LSE: CCM): OnDigital. This morning BSkyB (LSE: BSY) was rumoured to have made a £1b offer to extend its contract to cover Premiership football for a further three years, covered in today's Breakfast Fool. This would have squeezed out main rival OnDigital. However, Sky later denied it had made any offer.
Finally London Forfaiting(LSE: LFC), which arranges trade finance for companies in former Soviet bloc countries, fell 6p, or 16.9%, to 29.5p. This happened despite the group arranging a loan to Lithuania today. Earlier this year the shares traded at 119p.
A number of large companies with financial years ending in March are reporting interim results next week, covering the six months to the end of September. Most significant retailers follow this pattern so that the vital Christmas trading period is contained in one complete set of six-month results.
On Monday the British Airports Authority (LSE: BAA), which makes a significant amount of revenue from the retail outlets at its airports, reports interim figures. Profits before tax and one-off costs are predicted to be between £280m and £320m. Last year the group made a £307m profit at this time. The wide range reflects the fact that this is the first time BAA will not benefit from duty free sales from passengers moving between EU countries. Early this month a profit warning was put out. Before this some analyst thought BAA would make as much as £500m profit. Despite this, passenger traffic is expected to have increased overall.
Get ready for fireworks on Tuesday when once-dominant retailer Marks & Spencer (LSE: MKS) releases its interim figures to a cagey market. Investors fear the worst and have marked the shares down to a new nine-year low this week. Profits before tax and exceptionals are predicted to drop by roughly 45% to £190m. Like-for-like sales were reported to be heavily down in a late-September statement. The half time dividend will likely remain the same at 3.7p. If it is chopped expect mayhem in Marks' share price.
Rounding off the retail trio is chemists chain Boots (LSE: BOOT), which announces its interim results on Thursday. Pre-tax profits are predicted to rise slightly, coming in between £250m and £265m. Last time a £251.4m profit was made. The company's recent like-for-like sales figures have been better than Marks'. What will really interest the market is any news on speculated bids from supermarket chains J Sainsbury(LSE: SBRY) or Tesco (LSE: TSCO).
Three other large FTSE companies are reporting figures next week. Troubled transport stock Railtrack (LSE: RTK) reports interim results on Thursday. Qualiport holding Unilever (LSE: ULVR), the Anglo-Dutch food manufacturer, comes out with third quarter figures on Friday and oil giant Shell (LSE: SHEL) does the same thing on Thursday.
Independent Energy(LSE: IEH) was recently voted 1999 AIM company of the year. Its share price has been one of the best performers on the small company market in the last few years. Floated in the middle of 1996, the share price has risen from a low point of 55p in early 1997 to its current level of over £16, and has doubled in the last two months.
Despite the share price's meteoric rise the company still has a relatively low profile on the stock market. Its company message board is a quiet corner of the Fool where the main topic of conversation appears to be the stock's anonymity. It is now capitalised at over £600m, so it should easily qualify for the FTSE 250 index when it makes its proposed move to the main market. That move will be quite a loss for AIM as it currently accounts for some 9% of that market's total value of £7b. After a recent share offering that raised £100m the company is also listed on NASDAQ.
So what do they actually do? The clue, as you might suspect, is in the title. You may have noticed the electricity and gas markets in the UK have recently been opened up to competition. Gas led the way with a gradual opening across the country from November 1997 to May 1998. Electricity followed in September 1998. Telecommunications have been open for quite some time, while water, the last of the four utility services, is still refining its game plan.
In the same way that the Beer Orders Act allowed independent pub operators such as JD Wetherspoon(LSE: JDW) to produce strong growth, the opening of utility markets to competition has allowed firms such as Independent Energy to flourish by snapping up customers dissatisfied with existing services. Although the company is primarily concerned with distribution it also generates some power through its nine sites strewn throughout the UK. It also has a number of onshore gas fields.
Currently, the corporate electricity market dominates their revenues. The first quarter results released last week revealed that the annualised sales value of their electricity contracts was £840m. Of this 60% relates to medium-sized businesses (over 100 Kw per annum) and 36% relates to small businesses. The retail element accounts for just 4%, which may also explain the company's low profile. Currently, gas sales are tiny by comparison, at just £13m per annum. The group's total customers now number over 200,000 and include British Aerospace(LSE: BA.), the National Health Service and HSBC Holdings (LSE: HSBA).
The group made profit before tax of £4.5m in the last three months. That's pretty good considering that in its last full year it made profits of £4.9m. Profit margins in the first quarter were 3.2% and look set to climb higher as the group grows. The double whammy effect of increasing sales and margins often leads to rapid increases in earnings per share.
But for how much longer will the group continue to grow? On the sales side it seems logical that the greatest growth occurs in the first few years after a market is opened up to competition. The electricity and gas markets as a whole aren't expanding significantly each year and prices appear to be coming down. Therefore all of Independent's turnover growth has to come from gaining market share, or, put more simply, winning more customers than it loses.
When it comes to growth in business from the ordinary punter what will happen when the latest price cuts proposed by Ofgem, the new combined regulator for gas and electricity, come into force from April of next year. The business electricity market is run in relation to ever changing prices under the Pool system, well beyond the understanding of any ordinary mortal, and especially myself.
On the margin side we can compare Independent to some of its denationalised competitors to see what sort of returns they are generating. Well, we could if we could find one. They aren't that many left in the UK market! Scottish & Southern Energy(LSE: SSE) has turnover of £2.8b and makes pre-tax margins of 10%. Can Independent reach that level? As Independent reckons that it is 10% cheaper than the competition perhaps its current margins won't increase that much further?
It seems like an understanding of the electricity and gas markets would be very useful for investors taking a look at Independent Energy. The stock certainly doesn't look cheap based on the house brokers' current forecast. The forecast price to earnings ratio for the year ending June 2000 is around 39, falling to 24 the year after. However, these forecasts were prepared before the latest quarterly results, which the company said were ahead of expectations. But watch out for share options. Currently, there are options outstanding for over 15% of the company's share capital. When these options are exercised earnings will be significantly diluted.
There have also been a number of board changes recently. Three directors -- Burt, Ernie and Roy -- are all stepping down. Are the first two resuming their duties on Sesame Street? One of their replacements is Herbert Oakes who was a director of MidAmerica Energy, the company recently snapped up by one Warren Buffet. All in all, this looks like an intriguing company. But are its best days behind it, or yet to come?
Roll up! Roll up! Another month of Foolery is almost finished. That means since next Wednesday, 3rd November, is the first day of Woden in the new month, the usual Foolish social gathering will take place that night. The venue will be the same as last time -- the Barley Mow in Dorset Street, London W1. This is just around the corner from the Motley Fool's UK HQ at Baker Street. This is the nearest tube as well.
Fools of any motley description are welcome to come along from 7pm onwards for an evening of fun, frolics and off-line merriment. For more information look at the Foolish Social Gatherings board. Also this may well be the last time we meet in the Barley Mow. The pub is getting a little crowded for us all and Fool HQ may have moved to new premises by December.
Have a great weekend (and remember the clocks go back one hour on Saturday night).
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