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News & Tips: RBS, Standard Chartered, RSA & more

Equities are holding on
February 26, 2015

London equities continue to hover just below the record highs set earlier this week. Click here for The Trader Nicole Elliott’s latest take on the markets.

IC TIP UPDATES:

Royal Bank of Scotland (RBS) is stepping up its reorganisation with the sale of a loan portfolio in the US and a scaling back of investment banking operations there and in Japan signalling the end of its ambitions for a standalone global investment banking operation. Job losses have not yet been quantified but the sale of its $36.5bn loan portfolio in the US will result in a $200m loss. The bank is withdrawing from 25 of the 38 countries in which it operates. Results for 2014 showed an operating profit of £3.5bn after improving results from its core domestic UK and Irish businesses but an attributable loss of £3.5bn after further hefty writedowns. RBS has also announced the appointment of former head of the Financial Services Authority Howard Davies as chairman. We retain our buy recommendation.

Emerging markets focused bank Standard Chartered (STAN) has announced a shake up of its executive team with the departure of chief executive Peter Sands in June and chairman Sir John Peace next year with executive Jaspal Bindra and three non-executives also departing. Former head of investment banking at JP Morgan Bill Winters will be the new chief executive. We retain our long standing buy recommendation.

Sell recommendation RSA (RSA) has announced the departure of finance director Richard Houghton alongside its full year results which showed an 8 per cent dip in premiums written at £7.5bn due to competitive market conditions and portfolio changes made by the company itself. Core business operating profits rose by 17 per cent to £367m.

Outsourcing specialist Capita (CPI) enjoyed a strong 2014 with revenues up by 14 per cent at £4.37bn and underlying pre-tax profits 13 per cent higher at £535.7m. The company spent £310m on 17 acquisitions during the year while it won £1.7bn worth of new contracts, to which it has added another £1.1bn of contract wins since the turn of this year. Management says it has good visibility of low double digit growth for the year ahead. Buy.

Transport operator National Express (NEX) edged revenues up by 2 per cent to £1.87bn in 2014 with normalised profits 7 per cent higher at £145.4m. UK coach and bus operations performed well and US business picked up after a weather affected start to the year. Meanwhile, the company has won significant contracts in recent months including its third and fourth rail contracts in Germany and its first entry into the Middle East. The new business pipeline of opportunities is worth £8.1bn. We keep our buy rating.

Theme park operator Merlin Entertainments (MERL) enjoyed a 4.9 per cent rise in visitor numbers in the past year, which helped boost like for like revenues by 7.1 per cent and total revenues at actual exchange rates by 4.8 per cent. Underlying profits for the year rose by 11 per cent to £179m. A maiden full year dividend of 6.2p is being paid. Buy.

Recruiter Robert Walters (RWA) saw a strong surge in profits in 2014, with pre-tax figures 80 per cent higher at £18.2m, boosted by good fee income growth across all its regions. We maintain our buy recommendation.

Jupiter Fund Management (JUP) has reacted to a strong full year performance for 2014 by almost doubling the dividend payout to 24.7p a share, bolstered by a special dividend of 11.5p, which was facilitated by the sale of private client contracts. Overall funds under management rose marginally over the year to £31.9bn after net inflows of £900m and profits rose from £114m to £160m. Buy.

Irish building products giant CRH (CRH) saw like for like sales improve by 4 per cent in 2014 with cash earnings coming in 11.4 per cent higher at €1.6bn. Buy.

Resources and environment consultancy RPS (RPS) has delivered another 15 per cent rise in its dividend payout, the 21st consecutive year of such increases. During 2014 the company grew cash profits by 10 per cent at constant currencies. We keep our buy recommendation.

Touch screen technology specialist Zytronic (ZYT) says it is still trading ahead of last year and in line with expectations. Buy.

KEY STORIES:

Tobacco giant British American Tobacco (BATS) saw revenues dip by more than 8 per cent during 2014 as shifting currencies hit headline figures, on a constant currency basis revenues rose by 2.8 per cent. Adjusted profits dipped by 7.2 per cent at actual exchange rates. Overall cigarette volumes fell by 1.4 per cent, against an industry fall of 2.5 per cent, while tobacco volumes dipped by 1.3 per cent. The group’s core global drive brands grew their volumes by 5.8 per cent.

Interserve (IRV) enjoyed a ‘landmark’ year in 2014 when it grew revenues by 33 per cent, or 10 per cent on an organic basis, and headline profits rose by 31 per cent to £106.2m. The company won £4.1bn of new work during the year, taking its total order book to £8.1bn.

Kitchens specialist Howden Joinery (HWDN) saw sales burst through the £1bn level for the first time in its 20 year history in 2014, leading to an increase in profits from £135m to £188.8m and a hike in the final dividend from 5.5p to 8.4p plus a proposed £70m share buyback.

Bookmaker Ladbrokes (LAD) grew headline revenues by 3.8 per cent in 2014 but saw pre-tax profits dip by 13.5 per cent as the company was hit by some unfavourable sporting results as well as investment in its business and regulatory commitments.

Playtech (PTEC), which is currently working with Ladbrokes on its digital offering, enjoyed a 24 per cent rise in revenues to a record €457m and a 30 per cent improvement in adjusted cash earnings at €207.1m.

Premier Oil (PMO) saw revenues increase marginally to $1.6bn for 2014 but impairments of $327.8m due to lower oil prices saw it record a loss of $210.3m for the year, prompting it to suspend dividend payments.

Auto Trader, the car selling website operator, has announced its intention to float on the main market of the London Stock Exchange, a move which could see the company debut in the FTSE250.

Final results from Domino’s Pizza (DOM) showed a 14.6 per cent rise in system sales and underlying profit growth of 15 per cent to £54.8m. The mature UK stores portfolio saw like for like growth of 11.3 per cent. The company ended the period with 894 stores in four countries. Current trading remains strong in the UK and Ireland with like for like sales up 9.5 per cent and 4.8 per cent respectively.

OTHER COMPANY NEWS:

APR Energy (APR) has renewed 106MW worth of contracts for temporary power in Sub-Saharan Africa.

Engineer Bodycote (BOY) is rewarded investors with a special dividend payment of 20p per share on top of its ordinary dividend of 14.4p a share after posting decent full year results. Revenues rose by 4 per cent at constant exchange rates and profits by 5.4 per cent to £103.7m.

Synthomer (SYNT) posted what management described as a ‘robust performance in a challenging economic environment’ showing a 6 per cent dip in revenues at reported currencies and a 4.6 per cent reversal in pre-tax profits to £86m. The full year dividend is increased by 30 per cent to 7.8p while investors have been given a special dividend of 7.8p.