Weak manufacturing data weighed on sterling this morning, while the FTSE 100 is still struggling to regain the crucial 7000 barrier. Nicole Elliott reports in The Trader column.
IC TIP UPDATES:
Model railway specialist Hornby (HRN) signaled a dramatic acceleration of sales growth in an upbeat trading update for its final financial quarter to 31 March. In early February sales growth for the fiscal year was running at 6 per cent; now it is likely to be 13 per cent. That partly reflects soft comparative numbers, but reinforces the argument behind our October recovery tip. Buy.
Rentokil Initial (RTO) posted strong first-quarter numbers, with constant-currency growth of 6.2 per cent. Organic growth was 2.5 per cent and came mainly from North America, the UK, Asia and Latin America, with continental Europe lagging. The balance of growth came from acquisitions, which the company continues to make to bolster its flagship pest control business. Buy.
Johnson Service Group (JSG) announced a £21m placing to fund the £65.4m acquisition of London Linen Supply, which provides table linen and chefs' wear to clients including Jamie Oliver, The Wolseley and Brasserie Blanc. The deal will immediately increase profits and make JSG Britain's largest restaurant and catering linen provider. Buy.
GlaxoSmithKline (GSK) and its US biotech partner Theravance received clearance for the use of their drug Breo Ellipta for asthmatics aged 18 or older. But the US Food and Drug Administration said it needed further data to approve it 12-17 year olds. Income buy.
Shares in oil-recycling specialist HydroDec (HYR) jumped 4 per cent in morning trading on news that it had made its first commercial oil sale from the new Australian factory. Buy.
Insolvency expert Begbies Traynor (BEG) issued a profit warning, reporting that its strategy of bolt-on acquisitions was only partially mitigating the decline in corporate insolvencies. For the year to 31 March, the total number of UK involvency appointments was 16,380 - 14 per cent lower than in the previous year. The shares were down 13 per cent in early trading, and we are placing our contrarian value tip under review.
Simon Thompson tip Pure Wafer (PUR) announced the conclusion of negotiations with its insurers following the December fire at its Swansea factory. The value of its settlement is confidential, but management said it was less than the full cost of rebuilding the facility. As a result - and also because customers have already turned to competitors - they plan to return most of the cash directly to shareholders. The exact amount will depend on settlements with staff, suppliers and creditors, but is likely to be "significantly higher" than 60p (the average share price since November 2012) and lower than 125p. The shares had jumped over 80 per cent to 104p by 11am. Simon Thompson's latest update can be read here.
KEY STORIES:
Lloyds Banking Group (LLOY) reported underlying profits of £2.2bn for the first quarter - up more than a fifth year-on-year. Income was only up 3 per cent, buoyed by a slightly better net interest margin, so the main driver of the improvement was costs: operating expenses were flat at £2.3bn, while impairments more than halved to £177m. On a reported basis the picture looked worse, mainly due to a £660m charge for helping TSB migrate to a new IT platform. The shares rose 4 per cent in morning trading. Hold.
Virgin Money (VM.) continues with its aggressive growth strategy, with gross mortgage lending up 34 per cent and net lending almost doubling in the first quarter. Its market share of gross lending was 3.6 per cent, up from 3.1 per cent in the second half of last year. Hold.
Capital & Counties (CAPC) is making solid progress with its residential development masterplan at Earls Court in central London. The developer also confirmed in a first-quarter update that it remains on track to hit a rental-value target of £100m for its properties around Covent Garden. That's partly thanks to new lettings to Mariage Frères - a UK first for the iconic French tea house - and Italian knitwear brand Stefanel. Buy.
Vernalis (VER) has received approval from the US Food and Drug Administration for Tuzistra XR, its first slow-release cough-cold product. The approval is a watershed for Vernalis, putting it on track to launch the drug in August - in time for the 2015-16 flu season. The shares shot up 17 per cent in morning trading, and we remain buyers.
OTHER COMPANY NEWS:
Ball Corporation, the US can maker that in February made a knock-out cash and shares bid for UK rival Rexam (REX), issued a profit warning. "The best we can do is to offset everything other than the currency effects that are expected to continue through the rest of 2015," said management on a conference call. The shares plunged on the announcement, but recovered most of their losses in afternoon trading, with Rexam's stock following suit. Accept.
Shares in digital radio specialist Sepura (SEPU) shot up 13 per cent on news it had agreed to buy Teltronic, a fast-growing wireless communications company with operations in Latin America and the US. The €127.5m deal will be underwritten by a £60.5m placing and open offer.
