Equities are enjoying another positive start to the day after the US Federal Open Markets Committee remained suitably vague on the timing of interest rate rises. Click here to find out what the Trader Nicole Elliott thinks of the latest state of play on the markets.
IC TIP UPDATES:
Shares in RBS (RBS) were in favour with investors in early trading after the bank reported better than expected profit figures for the second quarter with net profits of £293m up by 27 per cent on the same period last year. Restructuring costs and misconduct charges continue to dog the bank but with the sale of more of its interest in Citizens in the US in the coming weeks the long process of cleaning up the bank is still on track. We maintain our buy rating.
Royal Dutch Shell (RDSB) is reacting to the depressed oil price environment with further job cuts and capital expenditure reductions. Alongside second quarter results which showed a 37 per cent slide in earnings it announced 6,500 further job losses and a 30 per cent cut to spending. Meanwhile, the takeover of BG (BG.) remains ‘on track'. Buy.
First quarter results from BT (BT.A) were relatively flat with revenues of £4.2bn and cash earnings 1 per cent higher at £1.45bn. Management expressed its confidence that investment in its superfast fibre network, which now reaches 80 per cent of UK premises, and its plans to grow into mobile services with the acquisition of EE will spur faster growth in the coming months. We keep our buy recommendation.
Mergers and acquisitions activity is hotting up. Next cab off the rank is cable management solutions specialist HellermanTyton (HTY) which has attracted what appears to be a knock out offer from US auto components specialist Delphi. The offer, at 480p per share, values the company at just north of £1bn and is a 44.5 per cent premium to last night’s closing price.
The turnaround at Rentokil (RTO) appears to be gathering pace. Half year results showed revenue growth of 4.5 per cent at constant exchange rates and profit growth of almost 16 per cent on the same basis. The company has acquired 14 bolt on businesses in the period, mostly in pest control, adding £21m in revenues. We maintain our buy recommendation.
Recruiter Robert Walters (RWA) goes from strength to strength, picking up strongly in the UK where first half net fee income rose by 20 per cent and continuing to grow in Asia Pacific, where fee income grew 9 per cent and Europe, up 2 per cent. Overall, group revenues surged by 22 per cent and pre-tax profits by 74 per cent. We continue to chase this cyclical recovery, buy.
Theme parks operator Merlin Entertainments (MERL) posted 2.8 per cent like for like revenue growth for the first half of its financial year but, as it warned a few days ago, its Alton Towers attraction continues to suffer from lower visitor numbers after one of its rides crashed recently. The Resorts Theme Parks division saw revenues dip by 2 per cent while the Legoland Parks division grew by 6 per cent. We maintain our buy rating.
Sales figures from retailer Bonmarche (BON) didn’t appear too sparkling on first view with in store like for like declines of 1.7 per cent in the 13 weeks to 27 June but this was set against strong growth of 13.5 per cent a year ago while online sales grew at 11.4 per cent in the most recent period too. Buy.
Natural resources, property and environmental consultancy RPS (RPS) hailed the diverse nature of its business for providing it with resilience in the face of weaker oil and gas markets. This meant a modest increase in half year revenues but a small reduction in profits. Our recommendation is under review.
Specialist engineer Hayward Tyler (HAYT), which supplies global energy markets, has won £13.5m worth of contracts during the past three months, which is 14 per cent ahead of last year. We keep our buy recommendation.
Nanoco (NANO) says the quantum dot production facility being built by joint venture partner Dow Chemicals in South Korea is currently commissioning and should start production in the second half of this year. Buy.
KEY STORIES:
A combination of advertising giant WPP (WPP) and Providence Equity Partners are teaming up to buy marketing and communications agency Chime Communications (CHW) in a deal which is likely to be pitched at 365p a share.
Warren East’s first few weeks at the helm of Rolls Royce (RR.) have been challenging to say the least. Half year results showed why with revenues down 3 per cent to £6.3bn and profit before tax down by almost a third at £439m. But recent contracts wins, especially in the aerospace division, suggest better times ahead and the order book has growth by £2.8bn to £76.5bn.
Lloyds Banking Group (LLOY) has completed the sale of another portfolio of loans in Ireland as it continues to slim down its balance sheet now market conditions in Ireland have improved. The company is selling gross assets of £2.6bn for a cash consideration of £827m.
Another company announcing significant job losses today is Centrica (CNA), where the fall in the oil price has impacted upstream operations and led to a strategic shift which will see the company reduce its exploration and production and power generation activities, particularly in renewables, in a bid to concentrate on energy supply, services and marketing. Management is aiming for cost efficiencies of £750m a year by 2020 and divestment proceeds of up to £1bn by 2017. Job losses will total 6,000 although investment in some areas will reduce the net effect to 4,000.
Recent events in Tunisia and ongoing disruption in Greece have the potential to hamper Thomas Cook’s (TCG) performance over the remainder of the summer. But at this stage it is tracking along similar lines to last year with 78 per cent of its summer programme sold. Costs related to Tunisia and Greece will hit full year earnings to the tune of £25m while currency fluctuations will shave a further £39m off earnings.
AstraZeneca (AZN) managed to eke out 1 per cent growth in revenues at constant exchange rates in the six months to June although trading remains tough. On an actual exchange rate basis, first half core operating profits dipped by 9 per cent to $3.6bn.
BAE Systems (BA.) says that first half results which show a modest increase in revenues to £8.47bn and profits of £700m, up from £689m. The order backlog totalled £37.3bn at the period end.
Full year results at drinks giant Diageo (DGE) were buoyed by a 9 per cent hike in the dividend after 5 per cent growth in reported sales and operating profit growth of 3 per cent to £2.8bn.
Smith & Nephew (SN.) managed to partially mitigate a 9 per cent currency headwind in its half year results with a 6 per cent uplift in revenues from acquisitions. Overall group revenues showed reported growth of 2 per cent and a 21 per cent uplift in operating profits to £439m.
Moneysupermarket (MONY) continues to trade well. Interim results showed an 18 per cent uplift in group revenues and adjusted operating profits 28 per cent higher at £50.8m.
Motor retailing remains a buoyant game in many parts of the globe. Inchcape (INCH) has seen some localised weakness but its diversified presence meant overall group revenues rose by 1.3 per cent year on year in the first half while profits dipped by 5.6 per cent but last year’s profits were boosted by a property disposal profit of £17.3m.
OTHER COMPANY NEWS:
Shopping centres operator Intu (INTU) saw its underlying earnings grow by 6 per cent in the six months to June while a £162m revaluation surplus means its property portfolio is now worth £9.5bn.
Engineer Bodycote (BOY) has been hit by the slump in the oil and gas markets which contributed to a 4 per cent dip in revenues in the six months to June with operating profits dipping by 3.6 per cent to £54.1m.
By contrast, electrical components specialist Laird (LRD) has gone from strength to strength, posting a 21 per cent rise in revenues and a 36 per cent leap in profits.
Wealth manager Schroders (SDR) enjoyed a 17 per cent rise in profits in the first six months of the year as assets under management rose by 14 per cent to £309.9bn.
Peer Henderson Group (HGG) enjoyed a similarly buoyant period with assets under management rising 10 per cent to £82.1bn after net inflows of £5.6bn while underlying profits rose by 11 per cent to £117.4m.
