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News & tips: Costain, WH Smith, Phoenix Group & more

Weak earnings reports from the oil and gas sector continue to punish the UK stock market
August 20, 2015

The FTSE continues to plunge despite the publication last night of minutes from the latest Federal Reserve meeting that were interpreted as dovish. Perhaps traders are more focused on the slew of oil company reports out today (and over the past two days). The Trader reports.

IC TIP UPDATES:

Plastic piping manufacturer Polypipe (PLP) posted interim results showing underlying top-line growth of 5.1 per cent and strong margin improvement. The house building boom has benefited the company in particular, but management also noted "good demand" from road and rail projects and an improvement in the home refurbishment market. We maintain our buy call.

Oil recycling group Hydrodec (HYR) announced another set-back for its plant in Canton, Ohio, which suffered an explosion in 2013. The company said "further remedial work" will be required if the plant is to run at full design capacity. As a result, the plant will miss its 2015 production target for 19m litres of base oil - though the Canton business is still expected to be cash generative by the year-end. Buy

Closed-book life insurance group Phoenix Group (PHNX) generated £110m of cash in the first half, compared to £332m in the first half of 2014, reflecting the need for its operating companies to transition to a lower-debt, higher-capital model under the new Solvency II regulatory regime. One notable achievement was an investment-grade credit rating from Fitch. We still see value in the shares. Buy.

Engineering group Costain (COST) posted strong results, with underlying operating profits up 17 per cent at £13.1m. The order book now stands at a record £3.7bn, over 90 per cent of which are lower-risk cost reimbursable forms of contract. Buy.

Bank of Georgia (BGEO) posted first-half profits of GEL134m (£38.1m), up 20 per cent thanks to balance sheet growth. That partly reflected the acquisition of Privatbank Georgia and the devaluation of the lari currency. Management insisted that asset quality remained "robust" despite the currency issue. Sell.

KEY COMPANY STORIES:

WH Smith (SMWH) said its profits for the year to 31 August would be slightly ahead of the current analyst consensus following a "strong performance" from the retailer's travel outlet business this summer. Sales are also slightly ahead in the group's beleaguered high-street presence thanks to "favourable publishing in books". Results are on the 15th October.

Sanne Group (SNN), a specialist outsourcing company that listed on the stock exchange in April, released maiden results. Cash profits rose 28 per cent to £8.3m for the first half, while net debt plunged to just £8.6m following the flotation by private equity group Inflexion. Sanne provides corporate administration and compliance functions to fund management groups.

Industrial engineer TT Electronics (TTG) posted weak first-half numbers, but no worse than expected following a drastic profit warning a year ago, the ousting of the chief executive and finance boss, and the launch of a new strategic plan in March. Sales inched up 1 per cent, but operating profits fell 30 per cent to £10.4m.

Rank Group (RNK) announced strong numbers, boosted by a recovery at its Mecca bingo business. Grosvenor Casinos saw like-for-like top-line growth of 8 per cent and Mecca like-for-like growth of 2 per cent. Overall, adjusted operating profits were up 16 per cent at £84m.

Kaz Minerals (KAZ) saw its shares rise 18 per cent after the Kazakhstan central bank took the surprise decision to cut the country's currency, the tenge, free from a soft dollar peg. Any weakening in the tenge will reduce Kaz's cost base. The copper miner reported cash profits of $88m for the first half, against $195m last year.

Stock Spirits (STCK), the producer of various Eastern European vodka brands, laid bare the financial havoc wrought by supply chain disruptions and competitive pricing in Poland in "disappointing" first-half numbers. Total revenues fell 22 per cent to €108m, dragging operating profits down from €23.2m to just €5.2m. The problems follow an increase in excise duty in January 2014. Management stressed a "significant improvement" in the second quarter that has continued into the third quarter.

Gambling technology group Sportech (SPO) posted weak half-year numbers, with sales down 6 per cent at constant currencies and cash profits down 11 per cent. But shareholders are likely to be more interested in news surrounding a possible takeover by Contagious Gaming, a Toronto-based group. Management noted "a period of considerable consolidation" in the industry and said it continued to "explore all options to deliver strategic value for all our shareholders".

Premier Oil (PMO) reported surprisingly strong numbers, boosted by hedges and cost savings. Operating cash flow increased from $499m to $513m, though impairments pushed the bottom line into the red. Unlike the oil majors, the driller maintained its capital spending target for this year at $1.14bn; next year it will fall to $500m.

OTHER NEWS:

Military supplier Meggitt (MGGT) won a contract with the US Defense Logisitcs Agency to replace fuel cells in the Hornet fighter jet. The deal is worth up to $39.8m over three years.

Aim-traded biotechnology company Vernalis (VER) admitted that a pain-killer treatment for spinal cord injuries failed to make the grade following a Phase II proof-of-concept study. The company will make no further investment in the drug and will instead seek to "realise its potential value" through partnering. The shares fell 4 per cent.

NHS landlord Primary Health Properties (PHP) reported interim numbers showing steady progress in growing profits, mainly due to acquisitions. As a result, dividend cover - long a weak point at PHP - climbed from 84 per cent for 2014 to 89 per cent. Adjusted book value rose 6 per cent to 339p.