Equities are looking off colour once more as traders await central bank direction. Click here to find out what The Trader Nicole Elliott thinks of the markets.
IC TIP UPDATES:
Investors responded warmly to BAE Systems’ (BA.) bullish outlook for UK and US military spending, as Britain’s biggest defence contractor confirmed plans to reduce the production rate for Typhoons and cut about 370 jobs. Buy.
In a third quarter update, Derwent London (DLN) announced that in the year to date it has let 501,500 sq ft securing £26.2m pa of rental income. On average overall lettings have been 10.8% ahead of December 2014 ERV. Q3 lettings total 171,900 sq ft securing £9.5m pa, 12.5% ahead of June 2015 ERV. There is 398,000 sq ft under construction, and a further 620,000 sq ft due to start by June 2016. White Collar Factory - 293,000 sq ft under construction is now 29% pre-let. It is also contracted to purchase Aldgate Union E1 in Q4 taking current year acquisitions to c.£250m. John Burns, Chief Executive Officer, commented: "The current year is our best ever for lettings. We have also successfully recycled some more mature assets into several major opportunities and the Group's development activity demonstrates confidence that the high level of occupier demand for our product is set to continue." Buy.
Strong sales growth continues at retailer Card Factory (CARD). In the nine months ended 31 October, total revenue rose 7.9 per cent due to strong like-for-like sales growth, new store roll out and online expansion. Card Factory is up against a tough second half, considering the enormous growth this time last year; for this reason bosses say it’s unlikely to match the 24.9 per cent growth seen in H1. But the group did confirm the 15p special dividend would be paid on 27 November. We remain buyers.
Shares in AB Dynamics (ABDP) leapt 7 per cent in early morning trading. The automotive testing specialist’s pre-tax profit soared 41 per cent to £3.8m in the year to August, driven by strong sales of track testing products. Buy.
The outlook wasn’t so bullish for Morgan Advanced Materials (MGAM). Weak demand in North America and China prompted the ceramic and carbon products manufacturer to issue a profit warning. Shares fell 13 per cent. Under review.
Supply chain services group Wincanton (WIN) posted a 2 per cent uptick in pre- tax profit for the six months to September as revenue was buoyed by contract wins and renewals. Buy.
Falling restructuring costs helped Volex (VLX) make its first pre-tax profit since early 2013, sending shares up 5 per cent. That came despite weak demand in personal computer, tablet and printer markets weighing on revenues. Under review.
Shares in communications services provider Communisis (CMS) fell 15 per cent after the group revealed results for the full-year would be below expectations. Recently-acquired shopper marketing agency life is taking longer than anticipated to contribute its projected earnings. Management says this is due to some reduction or deferral in spend by existing clients and to the phasing of certain new business opportunities. We place our rating under review.
Self storage group Safestore (SAFE) expects full-year earnings to exceed market expectations, with fourth quarter like-for-like revenue up by 10.8 per cent. Occupancy rates have risen from 68.8 per cent to 72.6 per cent, and the group is now focusing on filling its 1.4m sq ft of currently unlet space. Buy.
Investors sent shares in XLMedia (XLM) up a tenth in morning trading after the digital marketer’s management said it expected sales to rise about 73 per cent to at least $88m this year, driving adjusted cash profits up 62 per cent to about $27.5m, exceeding market expectations. Several acquisitions have added clients and broadened the group’s geographic footprint. Buy.
Engineering consultancy Atkins (ATK) grew pre-tax profit by more than a third during the first half of this year. The group has benefitted from increased infrastructure spending in the UK and has worked at improving its margins. We reiterate our buy rating.
Carillion (CLLN) and its subsidiary the Bouchier Group have secured contracts in Canada worth over £100m. These include providing support services to oil and gas customers including Shell and Canadian Natural Resources,together with a maintenance and hard facilities management contract for the Department of National Defence Canada. We reiterate our buy rating.
KEY STORIES:
The loss of the Capital Connect and ScotRail franchises hit FirstGroup’s (FGP) rail revenues to the tune of £609m meaning group turnover dropped 17 per cent to £2.4bn. The company was also hit by the school calendar which meant its US student bus business had less operating days although this will reverse next year. Management says the group remains on the road to recovery and the above factors mean the “continued progress of our transformation plans are not fully reflected in these first half results”.
Anglo American(AAL) has announced several senior management changes to improve focus on the group's marketing business. Anglo American also announces the decision by Paulo Castellari to step down from his position as chief executive of Anglo American's iron ore business in Brazil to pursue other opportunities. Mark Cutifani, Chief Executive of Anglo American, said: "The full potential of our Marketing business is clear and is ever more important to realise”.
Private equity, infrastructure and debt investor 3i (III) has lifted its diluted net asset value to 401p per share at the end of September from 396p at the end of March. In private equity it made investments of £208m and realised £307m, demonstrating the decent market for realisations continues.
Not such plain sailing at alternative lender Aldermore (ALD) - its shares are down 5 per cent today. Looking at its third quarter update, it is hard to see why. Organic loan origination of £1.9bn year-to-date is up 12 per cent on the same period last financial year, with small business demand and residential mortgages growing strongly.
Fellow challenger Shawbrook (SHAW) is down 8 per cent today after the company announced 25m shares had been placed by a Guernsey-based fund. The final offer price was £3.35 per share, explaining why the shares have fallen back to close to this level. The Special Opportunities Fund still holds 45 per cent of the issued share capital.
The fact pre-tax profits were down some 17 per cent at SABMiller (SAB) might make any shareholders who aren’t keen on its impending takeover by rival Anheuser-Busch InBev think again. Revenues were down 12 per cent to $9.9bn (£6.5bn) after lager volumes dropped marginally and all the regions it operates in saw weaker sales. However, on an organic, constant currency basis, it was a happier picture with revenues up 5 per cent and group net producer revenue up 4 per cent.
Premier Oil (PMO) has lowered its full-year capital expenditure programme as it deferred some project developments and exploration expenses into next year. There was progress on the operating front as Premier said oil production so far this year had averaged 57,500 barrels per day (bpd), ahead of full-year guidance of 55,000 bpd, which it left unchanged.
Rolls-Royce (RR.) shares continue to plunge after the engineer issued yet another profit warning. The group complained of “sharply weaker demand” and warned that it’s reviewing its shareholder payout policy as a result of falling profits.
IMI (IMI) also surprised markets with a profit warning, as lower margins weighed on earnings. The engineer responded by outlining plans to implement a number of cost-cutting initiatives.
OTHER COMPANY NEWS:
Management at Punch Taverns (PUB) is hoping they will have an “appropriate period of time for implementation” of legislation which comes into effect in June next year aimed at removing the model where publicans are tied to the brewery. Punch is readying itself for this after selling 158 non-core pubs after the year end and exiting a 50 per cent joint venture in Matthew Clark. The group suffered a pre-tax loss of £105m, including £166m of non-underlying charges due partly to its recent capital restructuring.
Things are more merry at rival pub group Young & Co’s Brewery (YNGA) where reveneues rose 8.3 per cent in spite of what management called “tough comparatives”. Managed house like-for-like revenue grew 5.5 per cent, which is the fourth consecutive year of growth above 5 per cent. Its hotels business also seems in ship shape with its a 78.5 per cent occupancy rate.
Loss-making laundry technology business Xeros (XSG) has announced plans to raise £40m from a share placing. The company - whose full year results revealed revenues of £0.5m in the year to July - intends to use the funds to accelerate its commercial laundry strategy in the Americas and Europe, develop domestic laundry technology and continue its research into polymer bead innovations.
A half-year update from Bargain Booze owner Conviviality (CVR) has revealed a 38 per cent surge in sales to £252m, although this includes revenues from its recent acquisition of wholesaler Matthew Clark. Excluding the deal, revenues rose 4.4 per cent. The decline in like-for-like sales on the retail side is also slowing, from -1.7 per cent this time last year to -1.3 per cent in the first half.
Beazley (BEZ) has published a positive Q3 IMS this morning, highlighting premium growth driven by its US-focussed speciality lines portfolio which is still achieving rate increases, a better than average expected combined ratio and a relatively good investment return. Beazley’s specialty lines portfolio accounts for almost half of total premiums and is enabling Beazley to achieve profitable growth, it is a leader in many lines within this portfolio, including its breach response product. The stock is trading on 2.1x 2015E NTA.
Builders merchant Grafton (GFTU) delivered an upbeat trading statement for the four months to the end of October, with like-for-like revenue growth of 4.9 per cent. Crucially, spending in the repair, maintenance and improvement sector is starting to show signs of growth. However, gross margin pressure compounded by stiff competition has continued.
