Shares in London began the day with a hefty fall as confidence evaporated. Click here to find out what The Trader Nicole Elliott thinks of the markets.
IC TIP UPDATES:
Luxury fashion group Burberry (BRBY) saw shares nudge up 2 per cent this morning following a positive third quarter update. Retail revenue grew 1 per cent during the period to £603m, and while like-for-like sales are flat year-on-year, it’s a vast improvement from a 4 per cent decline in the second quarter. Crucially, mainland China also returned to growth. We remain buyers.
Recent buy tip SuperGroup (SGP) has reported a 14.6 per cent improvement in total retail sales during the 11 week period ended 9 January 2016. Like-for-like sales rose 1.6 per cent, well behind the 12.4 per cent reported last year, but a tough comparative period was well-flagged. Expectations for the full-year have been maintained.
The market seems to be disappointed with the dish served up by Restaurant Group (RTN) this morning with the shares down 13 per cent at the time of writing. Like-for-likes sales growth was evident - but the 1.5 per cent level was below the 2 per cent market expected by the market. This has prompted broker Peel Hunt to drop the company’s rating to ‘sell’ from ‘add’ and further trim its pre-tax profit expectations for 2016 to £91.7m from £94.6m, leading to EPS of 35.5p from 36.7p. We put our recommendation under review.
Smiths Group (SMIN) has announced that the president of its John Crane division is leaving the company. John Crane, which counts BP and Chevron as its clients, has come under pressure from falling energy prices. Buy.
A battling performance from discount clothing retailer Primark was not enough to drag the whole of Associated British Foods (ABF) with it. The high street chain, which accounts for two fifths of the group’s revenue, saw total sales rise 3 per cent at actual exchange rates due to currency pressures for the quarter to January 2. But there were no numbers attached to the updates of the other divisions. It said AB Sugar “continues to make good progress” and that grocery had made “further margin progress”. But the rub is, at group level, sales fell 2 per cent accounting for currency movements. Sell.
A good update for Jupiter Fund Management (JUP), which has put some space between it and a falling market today. Net mutual fund inflows of £549m between October and December helped assets under management to £36bn. We keep our buy rating.
A challenging UK market, poor roofing sales and weak euro triggered another difficult period of trading for SIG (SHI). Constant-currencies revenues were up 3.4 per cent, with the majority of this growth coming from acquisitions. Our buy advice is under review.
Good news and bad for our recent buy tip Arbuthnot Banking Group (ARBB) in today’s trading update. Its subsidiary, challenger bank Secure Trust Bank (STB) continues to trade well, with its customer loan book growing by 70 per cent over 2015, breaking the £1bn barrier. On the private banking side, Arbuthnot pulled out of the purchase of a residential mortgage portfolio after proposed changes to credit risk rules. This led to one-off transaction costs of £450,000. We keep our buy on Arbuthnot.
Shares in tool hire group Lavendon (LVD) rose 6 per cent after management announced it expects results for 2015 to be at the top end of market expectations. The Middle East led the pack, thanks to increased activity in Qatar and UAE. However, revenue growth in the UK fell 1 per cent last year. Buy.
Three men have been arrested following alleged mistreatment of teenage inmates at the Medway Secure Training Centre run by security outsourcer G4S (GFS). The arrests came after BBC Panorama investigation into the centre. On Tuesday the group sacked four employees. We place our recommendation under review.
Shares in vet business Dechra (DPH) have performed well since our buy advice, but the stock is down roughly 2 per cent this morning following a first-half update from the group. Challenges in Germany persist, but revenues are up 15 per cent at constant currency and expectations for the full-year remain on track. We remain buyers.
KEY STORIES:
It’s fair to say things are getting complicated in the Home Retail (HOME)/Sainsbury’s (SBRY) saga. Late last night, prior to its trading update this morning, Home Retail announced it would sell Homebase to Australian buyer Wesfarmers. Sainsbury’s may not care; it’s made no overtures to Homebase as part of its bid and its interests clearly lie with Argos and its online distribution network. Home Retail admits the performance at Argos has been ‘mixed’, with like-for-like sales down 2.2 per cent. Homebase, meanwhile, grew underlying sales by 5 per cent.
One to watch out for today was Britain’s largest grocer Tesco (TSCO), which reported a 1.5 per cent decline in UK-based like-for-like sales during the third quarter. Over Christmas, total like-for-like sales grew 2.1 per cent and UK-based like-for-like sales rose 1.3 per cent. Sales rose nearly 5 per cent in response.
It might have fallen dramatically behind in the merger and acquisition race but bookie William Hill (WMH) is keeping up with its own numbers at least. The group reported improved sports betting gross win margins in each of its divisions compared to 2014, except for the US, in Q4. Its core online markets - the UK, Italy and Spain - were standout performers in terms of revenue growth but ‘other markets’ and Australia stumbled over a few hurdles meaning the group saw a 1 per cent drop in revenues. The stock initially fell more than 3 per cent on the numbers but is now up more than 1 per cent.
Further pain for emerging markets-focused asset manager Ashmore (ASHM) in the last three months of 2015, with assets under management falling $1.7bn as a result of net outflows. This was mostly Asian and European institutional investors dumping emerging market local currency and corporate debt funds. Investment performance was flat.
Countryside Properties is to become the latest house builder to float on the London Stock Exchange, with plans to raise £114m. This will be used to to reduce debt by around £64m, while £50m will be used to accelerate growth on existing developments. Completions in the year to September 2015 rose by 16 per cent to 2,364, while underlying profits nearly doubled to £91m.
Market darling Booker (BOK) has let investors down today, reporting a 3.1 per cent fall in third quarter like-for-like sales. Group sales, including Budgens and Londis rose 10.5 per cent, but excluding the acquisitions, bosses cited weak consumer demand across the existing business. Underlying tobacco sales also crashed nearly 7 per cent.
Aim-listed ASOS (ASC) has shown management changes aren’t always to be trusted. As Nick Beighton takes the reins from Nick Robertson, retail sales rose 22 per cent overall, and UK retail sales rose by a quarter during the four months ended December 2015. But margins are off slightly, which clearly has the market worried about the bottom line. The shares were sent down 3 per cent in early trading.
JD Sports (JD.) continues to dominate sports fashion in the UK. The high street chain reported a 10.6 per cent improvement in like-for-like sales during the five weeks ended 2 January 2016. Because of that, full-year pre-tax profits are now expected to be ahead of market expectations of £136m by roughly 10 per cent. Shares rose more than 4 per cent in early trading.
Bunzl (BNZL) chief executive Michael Roney will retire in April, to be succeeded by managing director of Bunzl’s continental Europe business Frank van Zanten. Shares in the group fell 3 per cent upon the announcement.
Mothercare (MTC) sales have been treading water for some time, and today’s update doesn’t seem likely to alter that. The group’s doing well at home, with like-for-like sales up 4 per cent in the UK, and online sales up close to 12 per cent. However, international markets remain “challenging” with sales down 1.3 per cent at constant currency and 9.5 per cent at actual exchange rates.
Convenience retailer McColl’s (MCLS) hasn’t found much favour with the market this morning. The shares fell following a January trading update where total sales grew 3.3 per cent, but fell 0.7 per cent on a like-for-like basis. That’s actually an improvement on compared to the fourth quarter in FY2015, but it’s clear the premium end of the business is selling wares far better than its core newsagents.
Third quarter results from discount retailer B&M European Value Retail (BME) were far better than expected - evident by a 5 per cent improvement in the share price this morning. Like-for-like sales were positive through December, and down just 0.7 per cent overall, proving November’s slump was not long-lived. The German expansion is also ramping up, with 22 to 23 new stores in the works.
OTHER COMPANY NEWS:
Meatpacking company Hilton Food Group (HFG) says it has performed ahead of expectations for the 53 weeks to 3 January. Volumes in western Europe rose thanks to capacity expansion in the UK and a strong showing in Holland. Its joint venture in Australia is also underway, with production starting there in recent weeks. Management said its financial position “remains strong” leaving it “well positioned for future expansion.
Shares in Zotefoams (ZTF) fell 3 per cent after the cellular material technology company revealed delays in opening a new manufacturing facility in the US. Other than that the trading update was positive, with sales in the second half rising 13 per cent.
Braemar Shipping (BMS) has revealed it’s on track to meet expectation, despite encountering tough markets. Higher oil production saw the group to experience good tanker activity, which helped to offset weakness in dry cargo and offshore activity. But investors were unimpressed, sending shares down 3 per cent in early morning trading.
A renewed agreement with ITV has done little to cheer investors in interactive gaming company NetPlay (NPT) this morning. The stock is down more than 3 per cent even though its partnership with the key channel has now been extended to 2019.
