Join our community of smart investors

News & Tips: RSA, BP, Royal Mail & more

Equities have staged a minor recovery
July 28, 2015

Equities have staged a minor recovery after the recent sell off, but it may only be temporary respite. See what The Trader Nicole Elliott thinks of the markets here.

IC TIP UPDATES:

IC sell recommendation RSA Insurance (RSA) is being eyed up for a possible takeover after Zurich Insurance admitted that it is evaluating a possible offer. Our recommendation is under review.

Engineer GKN (GKN) has been busy. It has announced the €706m acquisition of aerospace supplier Fokker, which will be part-funded by a €200m placing, alongside its half year results for the period to 30 June. Sales in the six months grew by 1 per cent and profits by 4 per cent to £307m. We maintain our buy rating.

A chunky outflow of non-operating items worth almost $7.5bn played havoc with oil giant BP’s (BP.) interim results. The charges, mainly related to the 2010 Deepwater Horizon disaster, meant the group posted a loss of $6.3bn for the period compared with a profit of $3.2bn a year ago. We maintain our sell rating.

Another buy recommendation reporting strong results was ITV (ITV) where adjusted earnings rose by almost a quarter to £400m in the six months to June with the company being boosted by strong showings overseas and in its content businesses.

Half year results from property specialist Segro (SGRO) reflected its recent focus on industrial buildings with its UK portfolio rising in value by 6.9 per cent and its overall portfolio up by 6 per cent to £5.2bn. The company has new buildings under construction which will contribute £22m to rents with a further land bank which could contribute £73m in annualised rents. Buy.

Galliford Try (GFRD) has continued its strong run of contract wins of late with the closure of a £48.5m package of schools work in Lincolnshire. We keep our buy rating.

Half year figures from Provident Financial (PFG) showed a 34.5 per cent leap in adjusted profits to £126.6m while a repositioning of its home credit business looks to be succeeding with period-end receivables up by 18 per cent. Buy.

Pace (PIC), which is in the process of being acquired by ARRIS Group, posted a 5.3 per cent dip in revenues for the six months to June but saw profits rise 54 per cent.

Sell recommendation Informa (INF) produced a solid showing for the six months to June with reported growth in revenues of almost 9 per cent and underlying growth of 2 per cent. Adjusted operating profits rose 14 per cent to £190m. Our recommendation is under review.

Simon Thompson recommendation Stadium Group (SDM) wants to raise £6m from investors to contribute to the acquisition of UK power solutions company Stontronics in a deal which could eventually be worth up to £6.5m.

Another Simon Thompson recommendation, 1pm (OPM), is on the acquisition trail. It is proposing the acquisition of equipment finance specialist MH Holdings for £12m and will seek up to £7.3m from investors to fund the deal through a placing and open offer.

Burford Capital (BUR) has enjoyed a 56 per cent uplift in first half operating profit, a period which included its largest ever return from investment in litigation financing with a recovery of $61m on a $25m investment. We keep our buy rating.

A trading statement from Internetq (INTQ) revealed 10 per cent year on year revenue growth with adjusted cash earnings up by 35 per cent. Buy.

KEY STORIES:

Royal Mail Group (RMG) shares are under pressure after regulator Ofcom revealed that its investigation into competition in the industry found that Royal Mail has acted unlawfully in terms of the prices and terms and conditions for its bulk delivery. The company is likely to be fined.

Melrose Industries (MRO) appears to have pulled off another successful turnaround after agreeing to sell its Elster business, bought in 2012 for £1.8bn, to Honeywell International for £3.3bn. Up to £2bn of the proceeds will be returned to investors.

High street retailer Next (NXT) has once again outperformed the expectations set out by management by delivering full price sales growth of 3.5 per cent for the 26 weeks to 25 July with Next Retail sales up by 0.8 per cent and Next Directory sales up by 7.5 per cent. Management has now edged its full year profit guidance up with the mid point now £825m, up from £810m.

Challenger bank Virgin Money (VM.) increased profits by 37 per cent to £81.8m in the first half of its financial year. The company grew its gross mortgage lending by 44 per cent to £3.6bn in the period and had mortgage balances of £23.6bn at the period end.

Domino’s Pizza (DOM) continues to grow apace with UK like for like sales up 10 per cent in the six months to 28 June with e-commerce driving the performance. The overseas businesses are also showing signs of improvement with losses in Germany shrinking.

Power generator Drax (DRX) posted solid growth in earnings from £102m to £120m in the six months to June although recent changes to government support for low carbon and renewable energy have cast a shadow over the business.

Wealth manager Rathbones (RAT) grew funds under management by 4 per cent to £28.3bn in the six month period to 30 June.

Interim results from McColl’s Retail (MCLS) showed a 1.9 per cent dip in like for like revenues as the newsagents and standard convenience stores struggled but its food and wine and premium convenience stores fared better.

OTHER COMPANY NEWS:

Gloo Networks, a digital media investment vehicle backed by Simon Thompson recommendation Marwyn Value Investors (MVI), has announced plans to float in London with a view to acquiring digital media businesses.