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News & Tips: Rolls Royce, Legal & General, Shawbrook & more

Equities have bounced back sharply
June 28, 2016

Continuing the theme of increased volatility in the post-Brexit world, equities have rebounded strongly today with the FTSE100 putting on more than 2 per cent by mid-morning. Click here for The Trader Nicole Elliott's latest thoughts.

IC TIP UPDATES:

Sell recommendation Rolls Royce (RR.) has moved to assure investors that despite the Brexit result being ‘not the outcome the company would have chosen’, it will have no immediate effect on its day to day business and rather sensibly pointed out that the medium and long term effect will depend on the result of the divorce negotiations. In the mean time trading is in line with recent expectations with the first half expected to be close to breakeven and a significant weighting towards the second half. The company remains on track to deliver planned cost savings in 2016 and 2017. Until there is more sign of a sustained improvement in performance we retain our stance.

Insurer Legal & General (LGEN) has also updated investors following the Brexit result. The company, which has also announced the appointment of Sir John Kingman as chairman, reassured investors that under Solvency II rules its balance sheet is sufficiently strong and is proving resilient to volatile market conditions. The company is also not reacting to the downgrade of the UK’s credit rating by Standard & Poor’s as it already classed the UK’s credit rating as AA in its internal planning. Buy.

Shares in challenger bank Shawbrook (SHAW) against rising prices from the rest of the sector after reporting “irregularities” in one office of its asset finance business. A number of loans were written that did not meet the group’s lending criteria and as a result, the business will book a £9m impairment charge in the second quarter. New loans during the second quarter were also flat on Q1. Chief financial officer Tom Wood has also resigned , with effect from 30 June. We place our buy recommendation under review.

As the referendum dust continues to swirl about equity markets, housebuilder Redrow (RDW) delivered an upbeat trading statement, predicting that profits for the year to June 2016 will be at the top end of expectations. In the run up to the referendum there was no impact on house sales or visitor levels, the statement added. Looking ahead, the forward order book is currently over 50 per cent ahead from a year earlier, while legal completions grew by 17 per cent. Buy.

Shares in Carpetright (CPR) have been floored today by news that recent trading has been volatile. Like for like sales dipped 7.6 per cent in May before bouncing back to rise 6.3 per cent in June, leaving the eight week period sales down 1 per cent. Overall, results for the year to April showed underlying pre-tax profits up by one third to £17.3m despite revenues falling back by 1.3 per cent, exacerbated by a reduction in the size of the estate of 5.4 per cent. Our recommendation is under review.

Results from defence technology specialist Cohort (CHRT) were in line with expectations with revenues 13 per cent higher and adjusted profits coming in 18 per cent higher at £12m. Buy.

Car sales specialist BCA Marketplace (BCA) has issued maiden full year results since the company was brought to the market. The company posted revenues of £1.15bn and adjusted cash earnings of £98.5m. Trading has been strong with year on year volume growth of 7.9 per cent in the UK and 6.4 per cent in Europe. We retain our buy rating.

KEY STORIES:

As part of its “managed separation” Old Mutual (OML) plans to establish two separate entities, both listed in Johannesburg and London. One will consist of the group’s emerging markets businesses and the other of its wealth management operations. Continued weakness of the South African Rand means trading is in line with management’s expectations for the full year. The group has also revised its directors’ remuneration policy and long-term incentive plan.

Van hire specialist Northgate (NTG) has posted slightly reduced pre-tax profits of £77.6m for the year to April, as depreciation charges and adverse exchange rates moves held back the figures.

Shares in AstraZeneca (AZN) have reacted positively to news that its Zavicefta antibiotic product has been approved by the European Union for treating hospital acquired infections.