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News & Tips: Pets at Home, RBS, Restaurant Group & more

Equities are off colour once more
April 29, 2016

Equities have started the day in dowmbeat mood following some rather underwhelming economic data from the US. For The Trader Nicole Elliott's latest view of the markets, click here.

IC TIP UPDATES:

Pets at Home (PETS) has announced two small acquisitions this morning: a small animal specialist referral centre in Cambridgeshire and an ophthalmology centre in Cheshire. The latter will operate as a shared venture, with the original owners retaining a 10 per cent share of the business. No financial details were disclosed. Buy.

Johnson Service Group (JSG) has acquired Afonwen Laundry, a hotel linen supplier operating from laundry facilities in Reading, Cardiff and Pwllheli, for a consideration of £52.6m. JSG now intends to place more than 33m new shares in a bid to raise around £28.7m, and has secured an increased financing package of £150m with its existing banks. Buy.

Shares in Restaurant Group (RTN) have slumped a further 20 per cent-plus today after the company, which was already on a sticky wicket with investors after recent dour trading news, said that there has been no sign of a pick up. Like for like sales in the 17 weeks to 24 April were down 2.7 per cent and management now expect full year like for like sales to fall in the region of 2.5 to 5 per cent. To top it off, finance director Stephen Critoph is leaving the board with immediate effect after 11 years with the company. After previously giving management the benefit of the doubt, we place our recommendation under review.

We’ve often talked about the promise of Flowgroup’s (FLOW) boiler technology, but it is the Aim-listed firm’s energy business which has been driving turnover and cash flows. The division’s energy customer base now stands at 180,000, an 80 per cent increase since December. Full-year results, which were today accompanied by an agreement with Daikin Europe to expand its heating product range, detailed a 21 per cent increase in revenues, though the £17.1m operating loss caused some shareholders to sell out. We continue to rate the shares, 11 per cent down today, a speculative buy.

KEY STORIES:

First quarter results from pharma giant AstraZeneca (AZN) show a slight profit slip despite a 1 per cent improvement in revenues. Core operating profits are down 12 per cent at $1.6bn (£1.1bn) following the group’s recent spending spree on a slew of acquisitions recently. The amount spent on research and development also rose 15 per cent during the period, all of which translated into a 7 per cent drop in core EPS.

Royal Bank of Scotland (RBS) reported £421m operating profit before tax for the first quarter of the year, compared with £37m at the same time the previous year. However, a final £1.2bn dividend access share payment to the government - part of the government’s 2009 bailout terms - meant a £1bn loss for shareholders. The net interest margin was flat at 2.15 per cent, but restructuring and litigation costs were much lower.