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News & Tips: Interserve, Rio Tinto, Morgan Advanced & more

Equities are down again
May 6, 2016

London equities started the day in downbeat fashion once more ahead of US jobs figures out later. Click here for The Trader Nicole Elliott's latest views on the markets.

IC TIP UPDATES:

Mounting problems at Interserve’s (IRV) construction division is set undermine first half earnings. The group is taking a £70m provision in relation to a waste-to-energy contract in Glasgow, where subcontractor issues will result in further cost overruns and delays. Our recommendation is under review.

News that Morgan Advanced Materials (MGAM) traded in line with expectations in the first three months of the year was well received by investors. The shares rose 4 per cent after management confirmed the completion of its transition to a new global organisation structure and flat constant-currency sales in a period of weak industrial growth. Buy.

Pre-tax profit soared nearly a third at Smurfit Kappa (SKG) in the first quarter. The Irish corrugated packaging firm, which recently transferred its primarily listing to London and is widely expected to join the FTSE 100 at the next quarterly review, credited another strong period of trading to decent volume growth and lower one-off charges. Buy.

It’s been a busy week for Rio Tinto (RIO). Today, the mining giant announced that its Oyu Tolgoi copper and gold mine in Mongolia has reached the next stage of development. Construction on the underground mine will start this summer, following the recent approval after the necessary permits and the pending $5.3bn investment. Underground mining operation at Oyu Tolgoi are expected to begin in 2020, and within seven years should reach production of 500,000 tonnes of copper a year. Separately, Rio announced that it has set prices for its bonds due 2018 in a Dutch auction, helping it to reduce gross debt by $1.5bn. The shares, 11 per cent down in the last week, are an income buy.

We now understand why Shanta Gold (SHG) delayed publication of its full-year results. The Tanzanian miner has been busy finalising an agreement with its bond holders to reduce its notes by $10m, in exchange for a higher coupon. To do this, Shanta has tapped broker Peel Hunt to raise the difference in an equity placing, and separately announced a $5.25m silver streaming agreement. The shares are 9 per cent down today, but sit in line with our tip price. With the debt situation de-risked, and cash freed up to develop the Luika mine, we stay buyers.

KEY STORIES:

The swirling round palm-oil group MP Evans (MPE) that it was on the cusp of selling its interest in an Australian cattle business have proved true. The company announced this morning it had sold its 34 per cent stake in Australian beef cattle company Napco to the Queensland Investment Corporation. The move comes shortly after it sold a cattle fattening station in Queensland. Management said the sale price of AUS$18.50 (£9.40) per share was “a fair price for the group’s minority holding”, especially as its average purchase price some 11 years ago was AUS$8.44.This means the group nets roughly $64m in US dollars after costs. It will invest the proceeds into scaling up its main Indonesian palm oil business.

Weakness in the oil industry is having an impact at the world’s largest hotelier by rooms, InterContinental Hotels (IHG). The company witnessed group revenue per available room - known as RevPAR - rise 1.5 per cent, which is well down on the 5.9 per cent growth in the same period in 2015. RevPAR was down 10.4 per cent in the MIddle East, which pulled the division in which the region sits down. The Americas, Europe and Greater China registered small rises in RevPAR. Management said it now had 742,000 rooms and had also opened the boutique Kimpton brand’s first hotel outside the US in Amsterdam.

Numis’ (NUM) healthy performance makes it a rare beast among the listed brokerages. The group grew sales to a record £57m during the first half of the year and pre-tax profits by more than 40 per cent. The group has grown its equity fundraising market share to 9 per cent of that raised on the London Stock Exchange, completing 27 transactions.