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News & Tips: Trinity Mirror, BT, Rolls Royce & more

IC Daily email update
May 5, 2016

After a downbeat series of trading sessions, London equities perked up a little in early trading today. Click here for The Trader Nicole Elliott's latest take on the markets.

IC TIP UPDATES:

Shares in Trinity Mirror (TNI) leapt 7 per cent even as the Daily Mirror publisher revealed a 9 per cent fall in like-for-like sales in the four months to 1 May. Management blamed weak demand for print advertising. Underwhelming circulation also prompted it to shutter its new national paper, New Day, after just two months. But on the plus side, digital sales climbed 16 per cent as average monthly page views soared 22 per cent to 755m on a like-for-like basis. Buy.

Investors sent shares in BT (BT.A) up 3 per cent after the telecoms titan revealed plans to invest £6bn billion over three years to expand fibre broadband and high-speed 4G wireless coverage to 95 per cent of the UK. It also posted a 2 per cent rise in underlying sales in the year to 31 March, the biggest rise in more than seven years. The upshot was a 9 per cent rise in adjusted pre-tax profits to £3.47bn. The group also expects to realise greater synergies from its recent takeover of mobile giant EE, at a lower cost than predicted. And the audience for its BT Sport channel grew 45 per cent, underpinned by strong demand for European football coverage. Buy.

Sirius Real Estate (SRE) continues to refinance its existing bank facilities, replacing a €110.4m facility with a new loan of €137m from the same consortium of banks. Significantly, the blended interest rate of 3.61 per cent on the old loan will be replaced with €94.5m at 1.66 per cent, fixed for seven years, and €42.5m at 1.25 per cent over three-month Euribor (currently -0.27 per cent). Costs associated with the refinancing will amount to around €5.6m but will save €1.7m in annual interest payments despite the higher loan size. The €26,6m surplus from the new facility will be used to complete the acquisition of two business parks, which are expected to add annualised rental income of €2.5m. We keep our buy rating.

Derwent London (DLN) reported strong demand for office space in the first quarter of this year, securing pre-let agreements on 185,400 sq ft and generating £13.2m of rental income. Of the 1m sq ft development programme, 57 per cent has already been pre-let. Net debt rose by £65.7m to £977.4m but this still equates to a nominal loan-to-value ratio of 19 per cent, with cash and undrawn facilities totaling £310m. Buy.

Shares in Rolls-Royce (RR.) fell 5 per cent in morning trading after the engine maker signalled that first half results will struggle to break-even. Chief Warren East confirmed that achieving free cash flow targets will require a much stronger second half, which is something he’s confident of achieving. But investors are concerned that expectations have been too skewed towards a stronger end to the year and are overdependent on the group’s struggling aircraft engine aftermarket business improving. Sell.

Carmaker Daimler (DE:DAI) will build a €500m (£395m) Mercedes engine factory in Poland as it looks to capitalise on cheaper labour in Eastern Europe. The move is reflective of many in the industry, who have recognised that engineering skills in this region are comparable to the West yet cost a great deal less. Buy.

KEY STORIES:

Impellam (IPEL) has performed strongly in Q1, with net fee income up 27 per cent compared with the same period in 2015 (7.5 per cent organic growth). There was a particularly strong performance in temporary staffing and managed services, which offset slight weakness in permanent placement fees.

Bunzl (BNZL) has entered into an agreement to acquire the Berlin-based businesses Mo Ha Ge Mommsen Handelsgesellschaft mbH and Inkozell Zellstoff-Vertrieb GmbH. The businesses, with aggregate revenues of €22m, are engaged in the sale of healthcare products to a variety of at home end users and care homes.

It’s not looking like a particularly comfortable stay for shareholders in Millennium & Copthorne Hotels (MLC) after the key revenue per available room - known as RevPAR - continued to decline. The hit came particularly from major cities such as London and Singapore where lower occupancy and room rates drove RevPAR down 4.7 per cent on a constant currency basis to £60.02. Property income, which came partly from the sale of land in New Zealand, increased but this was not enough to offset the decline in hotel revenues meaning group pre-tax profits dropped 5.3 per cent to £18m. Management says it is focused on increasing revenue from food and beverages as well as meetings and entertainment.

Shares in Inmarsat (ISAT) fell 5 per cent after the satellite communications specialist reported tepid trading in the maritime and enterprise businesses. Management also warned that some opportunities for its fledgling Global Xpress service are slipping into 2017. But it stood by its medium-term forecasts.

In a first quarter update, recovering supermarket chain Wm Morrison (MRW) has reported 0.7 per cent growth in like-for-like sales, although that was against a pretty easy comparative decline of 2.9 per cent this time last year. Nevertheless, City analysts seem to be impressed, and are standing by their forecasts for the 2017 financial year for now.

IMI (IMI) voiced its confidence that business improvements and cost-reduction initiatives will give way to a better performance in the second half of its financial year. The engineer maintained its guidance after encountering a challenging six months that saw margins tighten by 250 basis points.

OTHER COMPANY NEWS:

Hotel Chocolat (HOTC) arrived on London’s junior Aim market this morning, raising gross proceeds of around £55m. With 8.1m shares placed, that hands the chocolatier a market capitalisation of £167m, although founders Angus Thirlwell and Peter Harris remain the majority owners, holding 66.6 per cent of the company stock between them.

Insurance group esure (ESUR) saw gross written premiums rise by 15.5 per cent in the first quarter of this year, boosted by a 17.1 per cent rise in motor premiums. Gocompare delivered a strong performance, pushing income ahead by 19 per cent from a year earlier.