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Third quarter update: Weir Group investors breathe a sigh of relief. Against concerns for a further lowering in profit guidance, Weir announced that current full year expectations had remained in line with its half year forecast, with investors appearing to breathe a sigh of relief – the share price rose by over 4% in early trading. Aided by the group's global presence, diverse end market exposure and targeted cost reductions, the company's operating margins for the quarter had proved in line with both the prior year period and management's expectations. Conditions had remained mixed across its end markets, impacted by increasing global macro-economic uncertainty and resultant declines in certain commodity prices. Reported order input for the group in the quarter was 8% down on the prior year and 15% lower on a like for like basis. In all, despite concerns for the health of the global economy near term, the group’s diversity and expected long term demand for commodities

Company overview In 1872, two brothers, George and James Weir, founded the engineering firm of G & J Weir. Over the past 15 years the company has turned itself from a basic pumps maker into a more broadly based "infrastructure equipment" supplier, with 2,000 products including valves and specialised actuators as well as pumps. Approximately one third of Weir’s staff of slightly more than 12,000 are engineers – with 90% of the total being based outside the UK, particularly in India, Australia and Brazil. The group is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

Key points Rich rating Hard-pressed customer base Scope for downgrades

Digital push Heading into the peak Christmas period, Argos expects to see growth in sales of tech gadgets such as e-readers and tablets. Competitors including online retail giant Amazon and grocery giant Tesco (TSCO) will force Argos to fight hard for every pound spent. Heavy discounting has the potential to crimp margins. In the longer term Argos will struggle to reverse recent negative like-for-like sales trends, as it must snare market share from well-resourced rivals who are investing heavily in their own multi-channel capabilities. DIY-to-decorating chain Homebase put up a creditable showing over the summer, even as downpours pegged back seasonal sales. Nevertheless, a 6.2% decline in like-for-like sales over the first half was alarming. Much now hinges on the January sales, when demand for big ticket items typically receives a boost. For the year to 3 March, Espirito Santo Investment Bank forecasts a 23% profits dip to £79 million for earnings per share of 6.6p. In our view, Home Retail has much to do to meet the broker's £89 million and 7.5p estimates for 2014. Based on these numbers, the FTSE 250 constituent trades on a prospective price/earnings ratio (P/E) of almost 17 times, a rating that looks decidedly demanding with an uncertain peak trading period ahead.

Doom and gloom Milton Keynes-headquartered Home Retail has been badly hit by the prolonged cyclical downturn in the UK non-food market. Last week's (24 October) results for the half to 1 September from the £911 million cap revealed a 37% taxable profits drop to £18 million on broadly flat sales of £2.5 billion. Operating profit fell at both Argos and Homebase. Consumer disposable income is under greatest pressure in those less affluent households which make up the bulk of Argos' target demographic. The value player faces structural challenges too, as low-cost online competitors and the supermarket multiples encroach on non-food territory in areas such as consumer electronics. At the same time, DIY-to-garden products arm Homebase continues to suffer as consumers prevaricate when it comes to big ticket purchases. Encouragingly, Home Retail did outline its long-awaited Argos review. Under new Argos Managing Director John Walden, the company will invest heavily in reinventing the catalogue-led retailer as a digitally-driven business. Argos, already the second most-visited internet retailer in the UK, will spend big to develop its online, mobile and tablet channels. They are to become the primary way in which the business interacts with consumers as the catalogue moves into a supporting role. Home Retail has also earmarked at least 75 Argos stores for closure or relocation over the next five years.

Thursday 1 November 2012 Use a 57% share price rally at Argos-to-Homebase owner Home Retail (HOME) since late July as a prime short-selling opportunity. With the typical Argos customer increasingly feeling the pinch and an uncertain Christmas ahead for most retailers, forecast downgrades cannot be ruled out, possibly as early as a forthcoming interim management statement (17 January).

Key points Advertising growth niche Scalable technology Rock-solid licensee revenues

Going live The big domestic broadcasters do not bid for second party live rights as these events are too obscure for their viewers and their consumer-name advertising backers who want a mass market. But Perform's gaming clients, including William Hill (WMH), value any live sports. Not only can Perform get competitive prices for its rights but it has the capability to deliver the content cheaply over the internet via it proven live-streaming technology. RunningBall should greatly improve the competitive proposition with its scouts feeding back real-time data from live football matches to complement video. Prior to its 2011 listing the company made four acquisitions, all much smaller than the €120 million RunningBall deal. Perform confirmed on Monday the integration of RunningBall was going to plan, as was the first-half (29 June) purchase of Mackolik, owner of a number of consumer-facing Turkish sports websites.

Rapid growth The third quarter's £7.2 million of advertising sales represented only 18.2% of group revenues. But do not underestimate the potential for growth in adverts/sponsorship embedded into VoD clips to drive the topline. Sales here came to £2.8 million in the quarter, or 39% of total advertising business. If this segment expands in line with industry growth rates it could soon become the dominant source of overall ad revenues. For now the bigger part of Perform's sales are derived from licences connected to the provision of live sport content to business users, predominately bookmakers. Bookies use the content for their fast-expanding 'in-game' online operations where punters take positions during a game. Perform's competitive advantage is an understanding of the international, or 'second party', live sports rights market for domestic events such as Italy's Serie A or Germany's Bundesliga.

Meanwhile, it would be wrong to read too much in to WPP's commentary. Perform's firm's digital advertising niche of display adverts embedded in online sports video on demand (VoD) is not prone to the same generalised pressures on marketing budgets that are hurting WPP. Digital advertising is actually taking a larger share of the shrinking marketing pie, as embedded video advertisements grow at a giddy rate. Joint Chief Executive Officer Oliver Slipper confirmed on Monday (29 October) that full-year expectations would be met at the group level. We expect momentum to resume and the £958 million cap to start churning out the positive earnings surprises which have been the norm since its April 2011 flotation. The sale of embedded VoD ads through Perform's portals, which include www.Goal.com and www.LIVESPORT.tv, will become an increasingly important growth driver. They help justify a prospective price/earnings ratio of 24.8 times, a premium rating warranted by the potential for high-teens percentage organic earnings growth. Perform's third-quarter showed a 44% year-on-year increase in sales. Although this was flattered by the spring's (16 May) acquisition of RunningBall, Chief Financial Officer David Surtees told listeners to a conference call underlying sales had grown by 'about 20% year-on-year'. This is likely to have translated into even faster profits progress given the highly-scalable nature of the model and the operational leverage this affords.

Use a pull-back in online sports content firm Perform (PER) as a buying opportunity. A hiatus in advertising growth, revealed in Monday's (29 October) third-quarter results, has prompted profit taking. Sentiment has been further dampened by disappointing third-quarter numbers from WPP (WPP) (25 October) and Publicis and Interpublic (26 October) that have cast a pall over the whole media sector. In our view, Perform's third-quarter 18.1% ad sales drop is likely to be no more than a passing biennial phenomenon, created by a lull between a major international football tournament and the start of fresh domestic seasons. This year it was the 2012 UEFA European Championships and the year after next it will be the 2014 FIFA World Cup in Brazil. Meanwhile, the third quarter is always quieter ahead of the start of national leagues in Perform's core territories of the UK, France, Italy, Germany and Spain.

Credit Suisse has downgraded hotel group Millennium & Copthorne (M&C) from 'outperform' to 'neutral' given only seven per cent upside to its 546p target price. The company's third-quarter results announced last week may have been in line with expectations but Credit Suisse said there is "evidence of slowing Asian RevPAR and a lack of near-term positive earnings catalysts with refurb spend only benefitting from late 2014." Asian RevPAR (revenue per available room) accounted for 54% of group earnings before interest and tax (EBIT) in 2011. The broker highlights three short-term risks and three longer-term positives. Risks: "1) slower Asian RevPAR and high Singapore supply growth in 2013; 2) signs of M&C underperformance in US/NY/RoE; and 3) lack of investment in weaker trading regions." Positives: "1) the upside from £240m of refurb capex could be worth 15-20% to profit before tax but is unlikely to benefit financials until H2 2014; 2) disposals/asset restructuring remain possible but visibility is low and 3) M&C has a c5,000 room pipeline but we estimate it adds only 0.4% to annual EBIT growth." Credit Suisse says that with trading risks increasing and little scope for a near-term positive EPS surprise, it is now more cautious on the prospects for M&C.

Credit Suisse has downgraded hotel group Millennium & Copthorne (M&C) from 'outperform' to 'neutral' given only 7% upside to its 546p target price. The company's third-quarter results announced last week may have been in line with expectations but Credit Suisse said there is "evidence of slowing Asian RevPAR and a lack of near-term positive earnings catalysts with refurb spend only benefitting from late 2014."

UBS has lowered its recommendation for High Street betting chain William Hill from 'buy' to 'neutral' following the stock's impressive outperformance this year. William Hill's shares have risen 70% in 2012 so far and have outperformed the All-Share index by around 60%, against a 15% increase in consensus EPS.

Investec has put upgraded its forecasts for engineering group Weir after the firm's well-received third-quarter update on Monday. Investec has raised its 2012 adjusted PBT estimate by around 2% from £437m to £445, implying an earnings per share of around 151p. As such, target 1,850p target price is put under review. The broker has maintained its 'buy' rating on the stock, saying that the shares trace at 12 times earnings.

Meanwhile, funding and cash flows issues are still a concern, she said, highlighting that CSCG still fails to fund dividends from operating cash flow. Seymour Pierce estiamtes that the company has an operating cash flow of around £90m, so funding dividends of £128m requires additional debt, asset sales, equity, or a combination of all three. Munden said: "Luckily for CSCG, the share price is being supported by its South African dual list with the recent devaluation of the rand increasing the allure of the stock for those investors. We note that Coronation has raised its stake recently by 2.2% to 14.25%, facilitated by Simon Property group's divestment to below 3% from 4%. Were it not for the support from South Africa we would be sellers." She said that consensus estimate for net asset value per share this year is 391p but this will decrease going forward "unless the balance sheet issues are addressed".

Seymour Pierce has reiterated its 'reduce' rating and 327p target price for retail-focused real estate investment trust Capital Shopping Centres Group (CSCG) ahead of its third-quarter results due out on Tuesday morning. "We preview the 3Q12 IMS due tomorrow and lower our forecasts to reflect the ongoing weak UK retail environment and its structural change resulting from internet sales," said research analyst Sue Munden. She said that one of the main things to look out for in the statement is the £1bn 10-year project pipeline which includes major upgrades at Lakeside, Watford and Nottingham. "Following the recent investor visits to Watford and Lakeside, we feel there is a major opportunity for these centres but, in our view, the success will hinge on CSCG being able to attract more aspirational retail brands - otherwise competition is not far away. The execution, in our view needs to be quick, not laboured over 10 years, in order to keep up with the pace of the transformational requirements of retailers."

Wolseley: Jefferies keeps underperform rating and 2,300p target.

William Hill: UBS downgrades to neutral, target lifted from 315p to 360p

United Utilities: AlphaValue upgrades from reduce to add.