Shares in London have found significant support in early trading on Thursday. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
No one really held out much hope for first quarter results from Marks & Spencer (MKS). New chief executive Steve Rowe has only been in the top job for a matter of months and the decision to reduce general merchandise promotions and move the summer sale to July meant an 8.3 per cent drop in clothing sales was to be expected. On the food side, total sales rose 4 per cent. We’ll likely look at this in more detail, but our recovery bet remains long-term. Buy.
Primark-owner Associated British Foods (ABF) has seen its shares recover most of the ground lost since the EU referendum result. Management said its clothing retailer operates discrete supply chains for its stores in the UK, US and eurozone, meaning it undertakes “relatively little cross border trading” between the UK and the EU. Sterling’s drop should have an adverse transactional impact on profit margins on Primark’s UK sales, which amount to half of turnover. But British sugar’s margins would see a favourable transactional effect, and there would be a translational benefit on group profits earned outside the UK, which last year made up half the total. It added with group revenue for the 40 weeks to 18 June up 3 per cent at constant currencies, and a better-than-expected third quarter performance, it no longer expected a decline in adjusted EPS for the full year. Sell.
Insurance giant Legal and General has checked into one of Premier Inn-owner Whitbread’s (WTB) hotels. L&G will pay £84.5m for the 389-room Hub by Premier Inn hotel at King’s Cross, which is due to open in 2017. In return, Whitbread will have a 25-year lease agreement. The deal is part of a plan announced in April to carry out sale and leaseback transactions this year with the aim of reaping £100-£150m. The total sale price of £84.5 million produces a net initial yield of just under 4% against an annual rent of £3.5 million. Buy.
With the sun shining more often than usual over in Ireland so far this year, cider and beer manufacturer C&C Group (CCR) has benefited. Management said its Bulmers brand had performed well in the period from 1 March to the start of July, while trading in Scottish pubs had also improved after a tough 2015. Elsewhere, Magners cider was heartily enjoyed in the UK with sales up 5 per cent in spite of the overall cider market declining 2 per cent and exports are on track to deliver 20 per cent growth.
Management said its export business was “entirely unaffected” by the UK decision to leave the EU and that it hedged most of its transactions. But with nearly half of profits denominated in sterling and reported in euros, C&C is exposed to the translation impact of a devalued pound. “At current levels, if sustained, currency movements have the potential to undo the earnings benefit from both cost reduction activity and the steady progress made in trading year-to-date,” it said. Buy.
Posh crockery maker Portmeirion (PMP) seems to have had a few plates smashed this morning. The shares are down a fifth after it warned pre-tax profits would be “materially lower” than the record £8.6m in 2015. Dampened demand in Asia shows no sign of easing and management has now also highlighted an “extremely disappointing” performance by its distributor in India. It has also noticed an impact on the UK consumer pre- and post-referendum and the potential positive impact of weak sterling on its overseas earnings has yet to be seen. That said, the dividend will rise by 14 per cent but this will push dividend cover marginally below its historic guidance of two times. Buy.
Referendum worries might be having a depressing effect on prospects for the financial services sector in London and demand for office space, but Great Portland Estates (GPOR) has no exposure, operating primarily in London’s West End, where most properties are listed, and supply is tight. With a knack of calling the market, the company has been recycling assets and for the last three years has been a net seller of property. As a result, gearing is down to a nominal 19 per cent, and its development arm is already 62 per cent sold or pre-let. The key point here is that asset values would have to fall by two-thirds to breach covenants, and this is unlikely to happen. In the three months to the end of June, four rent reviews were settled, securing £3.5m of income at 46 per cent above previous passing rent. Buy.
Brownfield regeneration and housebuilding specialist Inland Homes (INL) has announced a deal to buy a 13 acre site in Cheshunt which includes the former Tesco headquarters via a 50/50 joint venture. The site is expected to be chosen for a new ‘urban village’ of up to 1,000 homes and the deal is being funded by £5m in equity from both joint venture partners with further funding already agreed in principle with lenders. Buy.
Recruiter Robert Walters (RWA) said gross profit increased in the second quarter to the end of June and it remained confident in the face of the uncertainty caused by the Brexit vote. Robert Walters said group gross profit for the second quarter hit £69.3m, up 16 per cent on the £60m reported a year earlier. Buy.
The gold price rally in the wake of Brexit has been a blessing to pawn brokers H&T Group (HAT), and management alluded to further benefits in this morning’s trading update. As well as the golden opportunities presented by the current financial situation the Aim-traded company has had a good first six months, with trading in line and a larger loan book. Buy
Drilling at Bacanora Minerals’ (BCN) Sonora lithium mine is progressing in earnest ahead of the publication of a definitive feasibility study in the first quarter of 2017. The miner has already hosted visits by potential customers and offtake partners, amid an effort to upgrade the indicated and measured resource at La Ventana. Buy.
KEY STORIES:
A fourth quarter update from Dunelm (DNLM) shows reported like-for-like sales down 0.6 per cent during the period. But take a closer look - last year’s comparative figure included a later Easter as well as an extra week’s trading. Adjusting for this the underlying growth rate improved to 2.9 per cent. However, bosses have noted a slowdown in consumer spending ahead of the recent referendum, although there’s no conclusion drawn about the long-term effects from the vote.
Following on from a withering profits warning last week, Brammer (BRAM) has announced that chief executive Ian Fraser, who has been with the company for 18 years, is to leave the company. He will remain in place until a replacement has been found.
Non-Standard Finance (NSF) grew active customers by 13 per cent during the first half of the year, increasing the net value of loans issued up by more than a quarter. Boosting its agent numbers by half to 840 helped the alternative lender grow its business.
Shares in NCC (NCC) jumped 9 per cent after the cyber security specialist posted organic top-line growth of 19 per cent in the year to 31 May, propelling adjusted operating profits up 46 per cent to £38.4m. Strong demand drove organic sales up a quarter in the assurance business and a tenth in the smaller escrow division.
Shanks Group (SKS) said it has entered into talks to merge with Netherlands-based waste collection and recycling company Van Gansewinkel Groep BV. Under the terms of the deal, Van Gansewinkel shareholders would get €306m in cash and the balance in shares in Shanks. After completion, Van Gansewinkel shareholders would own 29 per cent of the combined company. Shanks added that trading in its current financial year has started well and is tracking slightly ahead of the company's expectations.
Rentokil Initial (RTO) announces its continued expansion in North America with the acquisition of pest control and turf products distribution business Residex LLC for $30m. Residex is the largest independent products distribution company in the US, with annualised revenues for the 12 months prior to acquisition of $113m. Meanwhile, Rentokil North America has been awarded a contract by the U.S. Center [sic] for Disease Control and Prevention to help control the species of mosquito that could potentially carry the Zika virus across the USA and its protectorates.
Bovis Homes (BVS) delivered a strong trading update for the six months to the end of June. Completions rose from 1,525 to 1,601 and average selling prices jumped from £222,000 to £255,000. Sales outlets were flat at 100, but this is mainly as a result of some sites being sold out quicker than expected. The company in fact opened 21 new sites during the period and further outlets are due to open in the second half. Bovis is also building more social housing units, a part of the market that is considered less likely to be affected by any more general downturn in the market. Hold.
