The traders' tool box

This month, we bring you five more leading trading ideas, including Man Group on new discounted cash flow calculations from Merrill Lynch, and demerger expectations, UK and European ports on Asian trade and their prime real estate, while Barclays puts numbers to the future of Ahold. Graeme Dickson from Simple CFDs recommends Taylor Woodrow and GKN, long and short respectively.Maybe you've held back from buying Man Group on reports of Amaranth-related losses, but it may not be too late to buy, according to a recent Merrill Lynch report, which raised their 12-month price target to 515p, mainly on rises in discounted cash-flow (DCF) values. "Man is the best value of the asset managers we cover," the 16 October report said. In perhaps the only City report to use the word 'yore,' analyst Philip Middleton said: "We do not see as much upside as of yore." However, Merrills attributed the target rise to changes in DCF, and to adding net tangible assets into its modelling - adding $2.2bn, as at 31 March. A demerging of Man Financial in 2007 would see a lower operational risk charge for the more capital conservative Man Investments, the ability to treat intangibles as capital. "There is a decent chance Man could argue to the regulators that the remaining buinsess should be treated as a low-risk entity under the regulatory capital regime," the ML report says.Stable cash flows and growing Asian trade make European ports "increasingly attractive targets for global investors," says Standard & Poor's Ratings Services. Containerised shipping growing faster than world trade, and investors "increasingly interested in the large amounts of prime real estate upon which many ports are located" could further drive M&A, says credit analyst Ralf Etzelmueller. Risks of ports' large capital investment requirements, potential regulation, and competition are "remote" compared with "commercial benefits stemming from increasing trade volumes, their natural monopolistic nature, and importance for the economy." ABP's August 2006 purchase by Admiral Acquisition and Babcock & Brown Infrastructure's buying of PD Ports are past M&A examples, Simon Group being subject to a bid from its largest shareholder a current one.The future of Dutch firm Ahold is still unresolved, thus presenting a range of plays, depending on what you think the outcome will be. Barclays Capital has ascribed a set of probablities to potential outcomes. The bank sees a 55% probability of some or all of Ahold's asset being put up for sale, and predicts negative credit implications upon the bank's projection of the resultant widening of CDS spreads. Barclays believes a full merger with Delhaize is a 15% likelihood, which would have neutral to slightly negative credit implications, again on widening spreads. These may tighten on likely deliverability concerns, the bank says, in the event of an LB, or if Ahold and Delhaze combine assets and split them by geography, although spreads would widen upon a full merger. Of course, nothing may happen, in which case, you're on your own.On the short-side, keep an eye on GKN. The company looks cheap on the surface with a price-to-earnings ratio of just 10.5 for 2007 and a dividend yield of 4%. However, since the shock profits warning by its peer Tomkins back in September, it is difficult to imagine how GKN can avoid the slowing demand for its products, further compounded by Chrysler's guidance, suggesting production cuts in the second half of 2006. Short positions should be considered above 300p with a stop-loss based on a close above 325p. This two reports directly above were written by the head of research at Simple CFDs, who does not hold any shares or derivatives in GKN, nor Taylor Woodrow. Material used for this report has come from Knowledge Technology Solutions, Dow Jones Newswires and Thomson Financial.What UK stocks, excluding investment trusts, trade on P/Es less than nine, at a 12% discount to net tangible assets per share and yield in excess of 3.6%? One that fits the mould is Taylor Woodrow, which looks to be in the middle of a decent re-rating. It's not had the best year, with Persimmon, Barratt Developments and Wimpey outperforming it by 7%-35%. In its interims, it blamed a 6% drop in pre-tax profits due to fewer UK selling sites and difficult market conditions, but said it expects its US operations to grow profits in the full year. We have seen positive US economic data suggesting the US economy is growing slow enough not to heighten chances of sustained hiking in US rates. It is no coincidence that Hanson, Ashtead and Wolseley, firms sensitive to sentiment in the US housing/construction sector, have received an upward correction.TW has 36% of its sales emanating from North America. Add recovery in the US housing market to the UK's housing boom and the fact the shares are fundamentally very cheap, then you have the recipe for a substantial re-rating. Longs in the region of low- to mid-360's with a stop-loss based on a close below 340p.

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