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News & Tips: Entertainment One, Sainsbury, Glencore & more

Equities are enjoying a day in the sunshine
September 30, 2015

Equity markets have bounced into the final day of the third quarter of the year but are still set for their worst three month performance since 2011. Click here for The Trader Nicole Elliott’s views.

IC TIP UPDATES:

Entertainment One (ETO) issued a pre-close trading update which reiterated recent confirmation that first half revenues in film will be weaker but should be made up in the second half. The company also announced a deal to acquire 70 per cent of television producer Astley Baker Davies, with whom it jointly owns the rights to the Peppa Pig franchise, for £140m. The company is raising up to £200m from investors through a 4 for 9 rights issue. We retain our long term buy recommendation.

Retailer Topps Tiles (TPT) continues to make solid progress, reporting record revenues in the region of £212m for the 53 weeks to 3 October with like for like sales up 5.3 per cent, following an 8.1 per cent rise last year. We keep our buy rating.

Workspace Group (WKP) has agreed to acquire a former Mecca bingo site in Wandsworth, South West London, for £26.1m. The site, which comprises a 43,000 square foot building and a 200 space car park, is adjacent to Workspace’s existing Riverside office and workshop building giving the company a 6 acre plot with development potential. We maintain our buy recommendation.

Inland Homes (INL) has said it will not be publishing its results for the 12 months to June today due to ongoing discussions over whether its Drayton Garden Village project should be consolidated in its financial statements. Nonetheless, management has reiterated its belief that results will exceed market expectations and should be published by 19 October. Buy.

Simon Thompson recommendation Gama Aviation (GMAA), the private jet business which reversed into Hangar8 to gain a London listing, has issued strong results for the six months to June. Revenues rose by 22 per cent to $191m against a pro-forma $157m for last year while underlying profits were 69 per cent higher at $4.9m.

Rigid plastics packaging manufacturer RPC (RPC) expects revenue for the first-half to be significantly ahead of last year thanks to its acquisition of Promens as well as good organic growth. However, management predict overall trading will be in line with expectations, taking into account foreign exchange headwinds and the adverse impact of high polymer prices. We maintain our buy recommendation.

Another Simon Thompson recommendation, Indian renewable power specialist Greenko (GKO), added 123MW of additional generating capacity in the six months to June, helping it towards its target of 1,000MW by the end of this year. Energy generation grew by 17 per cent while revenues were $56.1m and cash earnings $34.9m. In recent weeks the company has moved to resolve an issue of convertibles bonds which were creating a significant cloud over the share price by agreeing to sell its shares in Greenko Mauritius for £162.8m which will effectively see the trading activities of the business transfer to shareholder GIC, a representative of the Government of Singapore.

Gas to liquids technology specialist Velosys (VLS) issued half year results which showed revenues of just £100,000 as the company remains in the early stages of commercialising its technology. The company ended the period, in which chief executive Roy Lipski departed rather abruptly, with cash of £46.2m. Our recommendation is under review.

KEY STORIES:

Supermarket Sainsbury (SBRY) has seen a surge in its shares in early trading after delivering second quarter figures showing a 0.3 per cent rise in total sales, excluding fuel, after growth in sales volumes and transaction figures although like for like sales showed a more sobering dip of 1.1 per cent on the same ex-fuel basis.

Glencore (GLEN) has attempted to stem the tide of negative sentiment towards its shares by issuing a media rebuttal of claims that it may drown in debt saying its business is ‘operationally and financially robust’.

Insurance and travel specialist SAGA (SAGA) enjoyed a solid six months to 31 July in which revenues edged ahead by 0.8 per cent and pre-tax profits more than doubled to £140m, allowing a maiden interim dividend of 2.2p to be paid. In insurance, motor policies grew by 9.7 per cent with a strong combined operating ratio of 68 per cent while cash earnings in travel rose by 11.2 per cent to £16.9m.

French electricals retailer Darty (DRTY) has received an all share approach from Groupe Fnac on the basis of one Fnac share for every 39 Darty shares, which values them at 101p a share. Darty shareholders will also receive the 2.625c final dividend payable on 13 November to shareholders on the register on 23 October.

West End property specialist Shaftesbury (SHB) says trading has remained ‘buoyant’ while the company has also used favourable conditions to renegotiate significant portions of its debt.

Management at QinetiQ (QQ.) are maintaining their expectations for the financial year, according to its pre-close trading statement. Its EMEA services division has continued to see contract award decisions delayed during the first-half as the government’s Strategic Defence and Security Review (SDSR) continues.

OTHER COMPANY NEWS:

Insurance services specialist Quindell (QPP) reported retained profits of £414.5m for the half year to June, although this was boosted by receipts of £485.9m for the sale of the Professional Services division. Continuing operations posted revenues of £35.3m, down from £42.8m the previous year. Shareholders can still expect a payout of up to 100p a share relating to the recent sale proceeds.

Rio Tinto (RIO) has agreed to sell its 40 per cent interest in the Bengalla coal joint venture in Australia for $606m.

Pallet producer RM2 (RM2) generated a pre-tax loss of $25.4m (£16.7m) during the first-half of the year, compared with $22.2m in 2014. Last week, management announced revenue and production figures would be below expectations as a result of the need to change materials used in developing the pallets.

Recruiter Harvey Nash (HVN) reported a 4 per cent decline in pre-tax profit for the first-half, as a result of subdued trading in mainland Europe. Despite this management proposed a 10 per cent increase in the dividend to 1.49p.

As expected, revenue for industrial equipment distribution and hire group Northbridge Industrial Services (NBI) fell 12 per cent to £18.6m during the first-half, as a result of the group’s exposure to the oil and gas sector. The group also cut its interim dividend to 1p, from 2.2p last year. As a result of cost-cutting measures, finance director Craig Robinson will also step down with immediate effect. Until its end-markets recover, finance director functions will be handled by company secretary and financial controller Iwan Phillips.

Newly-listed Zegona Communications (ZEG) incurred a pre-tax loss of £0.7m for the first-half of the year, as a result of high administrative expenses. In August the group acquired quad-play telecommunications operator Telecable, via a share placing.