Equities remain in the doldrums in early trading today. Click here to see what The Trader Nicole Elliott makes of the latest market conditions.
IC TIP UPDATES:
Results from grocery chain J Sainsbury (SBRY) are disappointingly brief when it comes to the group’s latest acquisition deal with Argos owner Home Retail Group (HOME), but the group has already incurred £15m in fees. How much the deal might distract bosses from the recovery plan has yet to be seen, but underlying pre-tax profits of £587m - albeit down 14 per cent on last year - actually beat consensus expectations of £574m. More to follow. Buy.
Two months’ financial contribution from recently-acquired BG couldn’t stave off an 89 per cent first quarter decline in income at Royal Dutch Shell (RDSB). The super major, which maintained its dividend, also expects capital costs of just $30bn this year, 10 per cent less than it had planned while buying BG. We maintain our long-term income buy rating, and present the case for and against the shares in a company podcast special here.
Tobacco stocks, to many, are all about the dividend and Imperial Brands (IMP) has certainly delivered there. It’s one financial promise to the market, according to chief executive Alison Cooper, is to grow shareholder payouts by 10 per cent and it has done that. Adjusted operating profits were up nearly a fifth but the reported pre-tax figure was knocked by an accounting loss on derivative financial instruments. The company has integrated the ITG Brands business it bought from Lorillard (us:LO) last year, with Winston and Kool helping improve American market share to 9.3 per cent. Buy.
There is growth in like-for-like sales at discount pub chain J D Wetherspoon (JDW) but margins remain under pressure. In the third quarter, sales rose by 3.8 per cent but the operating margin of 6.4 per cent was down from 7.5 per cent in the comparable period last year. Management said this was largely explained by the increase in starting rates for hourly-paid staff in August last year, which was roughly 8 per cent. Of the 19 pubs it has closed, it has sold eight but plans to open 16 sites this financial year. Outspoken chairman Tim Martin said all this meant he was expecting a “reasonable outcome” for the full year, prior to the £3.8m property gain it accrued in the first half. Sell.
Shares in sub-prime lender International Personal Finance (IPF) fell 9 per cent after management revealed credit issued in Poland-Lithuania and Czech Republic declined by 2 per cent and 13 per cent respectively during the first quarter as competition mounted from payday lenders. Credit issued in Mexico also grew just 4 per cent, slower than expected. However IPF digital put in a stronger performance and helped grow overall credit by 6 per cent. Sell.
While some of its defence peers have made a habit of disappointing lately, BAE Systems (BA.) bucked the trend by reaffirming its guidance for 2016. The shares rose 1 per cent as management credited a number of big contract wins for driving an encouraging period of trading. Buy.
Ultra Electronics (ULE) has appointed Amitabh Sharma as its new finance director. Mr Sharma, who is no relation to the defence contractor’s chief executive Rakesh Sharma, previously worked at Gibbs & Dandy. Buy.
Standard Life (SL.) has bought retail fund management platform Elevate from Axa UK, adding £9.8bn in assets under administration and 160,000 customers. The acquisition takes Standard Life’s platform business assets under administration to £36.4bn. Buy.
First quarter results for Randgold Resources (RRS) were always going to be tricky. Not only did they follow a record quarter for production, but investors would have hoped for serious profits, given the retracement in the gold price. As it was, production dropped 11 percent to 291,912 ounces, though the $63.9m was 19 per cent up on the last three months of 2015 and a quarter higher than the same period a year ago. The shares, off 6 per cent this morning, are well up on our buy tip, which we maintain.
KEY STORIES:
There wasn’t any mention of Leicester City’s historic Premier League victory but Paddy Power Betfair (PPB) did acknowledge “adverse sports results”, including the Cheltenham Festival, meant customers’ net winnings totalled more than £20m in the quarter. Management said the integration of the two companies was progressing as planned and that turnover in each of its divisions - online, Australia, US and retail - all rose. That said, like-for-like turnover in its shops fell 1 per cent - again due to poor results - and online unregulated revenue fell by 14 per cent given the decision to exit Portugal.
We previously flagged that the fallout from Samarco – the iron ore mine jointly operated by Vale and BHP Billiton (BLT) whose dam collapsed last November – would run far beyond the initial settlement reached in March. Today, the Anglo-Australian miner announced Brazil’s Federal Prosecution Service has launched a claim for BRL 155bn ($43bn) for “social, environmental and economic compensation”. Shares in the group were down 9 per cent at the time of writing.
The traditionally weak first quarter for accommodation companies proved to be exactly that for PPHE Hotel Group (PPHE). Revenues came in pretty much flat as a rise in room prices was countered by an overall drop in occupancy to 72.5 per cent compared to 77.5 per cent for the same period last year. This meant revenue per available room - known as RevPAR - fell to £73.90 from £75.20. But there’s lots going on at the company. Post period-end, it has completed the refinancing of its Park Plaza Victoria London hotel and completed the acquisition of the remaining 80 per cent in its Croatian joint venture.
As expected, it’s not good news from high street chain Next (NXT). Total sales between the end of January and the start of May fell 0.2 per cent while retail sales crashed 4.7 per cent following cold weather in March and over the Easter weekend. It’s thought unlikely, but bosses admit it’s possible sales could continue to deteriorate. So far, total Next brand sales are down 0.9 per cent for the financial year - that’s at the bottom end of previous guidance.
Virgin Money (VM.) grew gross mortgage lending by 30 per cent during the first quarter of the year to £2.1bn. However, the challenger bank’s forward book spreads - loans it has recently made - are not at the level experienced during the first half of last year, putting pressure on its net interest margin. Management also expects buy-to-let lending to reduce during the second quarter.
Shares in Avingtrans (AVG) surged 13 per cent after the engineer announced the disposal of its aerospace operations for an enterprise value of £65m. Some of the proceeds will be returned to shareholders and used to pay off debt. Management is also keen to use a much healthier balance sheet to fund acquisitions in the energy sector.
Avon Rubber (AVON) hiked its interim dividend by 30 per cent after a decent period of trading triggered a 6 per cent rise in adjusted operating profit. Investors, who were previously concerned about weakness in dairy markets, reacted by sending the shares up 13 per cent.
OTHER COMPANY NEWS:
Regional airline Flybe (FLYB) has announced its tenth codeshare agreement which allows its passengers to travel onward to international destinations on third party carriers. The group said its latest codeshare agreement with Air India would mean travellers using its multi-frequency services to Birmingham from Belfast City, Edinburgh and Glasgow can connect onto Air India's daily flight to New Delhi. Flybe's current portfolio of existing codeshare partnerships with Aer Lingus, Air France, British Airways, Cathay Pacific, Emirates, Etihad, Finnair, KLM and Virgin Atlantic.
Beverage giant SABMiller (SAB) has jumped another hurdle in as part of its forthcoming acquisition by rival Anheuser-Busch InBev (ABI). The group has agreed to keep its Coca-Cola Beverages Africa (CCBA) company in South Africa and will invest some 800m rand (£37.3m) towards enterprise development, supporting small farmers and training for retailers. These commitments, the announcement said, will ensure that CCBA, which will be headquartered in South Africa, will support economic and social development in the country in a number of significant ways.
