The main UK stock indices crept upward in morning trading, perhaps in anticipation of a cut to interest rates by the Bank of England next week. Senior MPs have also criticised the job done by financial regulators, after a report on the collapse of lender HBOS in 2008 was only recently published. And ratings agency S&P has labelled the European Union as "unsustainable". Read The Trader Nicole Elliott's morning update here.
IC TIP UPDATES:
Food and ingredients business Greencore (GNC) has said it imports less than a quarter of its ingredients and packaging materials. Alongside the fact it has forward purchase agreements, that means the depreciation in sterling is not expected to impact profits this financial year. But, management said if current exchange rates persist, net debt at year-end will be “higher than expected at the half year (2017) due to translation of US dollar denominated borrowings”. But management still expects the group's full-year results to be in line with expectations thanks to a 4.6 per cent rise in constant-currency revenues to £350m in its convenience food division in the 13 weeks to 24 June. The ingredients and property division, which now represents less than 5 per cent of group activity, recorded revenues of £10.5m in Q3, some 33 per cent lower on a constant-currency basis, reflecting weak commodity markets and challenges in the dairy market. Buy.
Growth through acquisitions continues to be the game plan for packaging company Macfarlane (MACF). The group has announced its intention to buy Nelsons Cartons and Packages in order to strengthen its business in the Midlands. The provisional £6.7m price will be satisfied with the help of a £5.8m fundraising. The share price has nudged up this morning after a difficult few weeks following the referendum. Buy.
Shares in electronics supplier Acal (ACL) ticked up 2 per cent on a reassuring trading update for the quarter ended 30 June. The company said trading was in line with expectations and the outlook for the full year was unchanged. Trading since the quarter-end also looks to be on track with orders to date in July ahead of the same period last year. With 80 per cent of revenue originating outside the UK, Acal says the positive translation impact of weaker sterling is currently more than offsetting the negative impact on UK imports. Buy.
Shares in Redcentric (RCN) climbed 4 per cent after the managed services group’s directors said they expected to broadly meet the market’s first-half expectations. Buy.
Health and consumer strategic marketing group Cello (CLL) highlighted robust showings from the core of its health business and its signal division in the first half of 2016. Although management expects first-half profits to be flat due to the decline of the consumer consulting unit of Cello Health, it remains confident that it will meet the market’s full-year expectations.
Provident Financial (PROV) grew its pre-tax profits by half to £165m during the first half, increasing customer numbers and reducing losses from its digital lending product Satsuma and glo, its larger loan provider. Motor finance provider Moneybarn increased its adjusted pre-tax profits by 45 per cent - ahead of management expectations - while Vanquis Bank also improved profits. We stick with our buy tip.
KEY STORIES:
UK telecoms regulator Ofcom has proposed that the Openreach division of BT (BT.A) be run as an independent, legally separate entity within the telecoms titan, complete with its own board, branding and control of its budget allocation. BT investors sent the group’s shares up 5 per cent on the news.
Shareholders in BP (BP.) were having a pretty good month, despite the continued weakness in the oil price. But reality hit today, when the super major saw second-quarter earnings fall by almost 50 per cent (in terms of underlying replacement cost profit). The company also booked an additional $5.2bn (£3.96bn) charge from the Deepwater Horizon oil spill in 2010.
The precipitous fall in the Nigerian currency, the naira, alongside the squeeze on the economy from low oil prices has created “some of the most difficult trading conditions we have seen for some time”, management at PZ Cussons (PZC) has said. Africa accounts for more than two-fifths of revenue and Nigeria is a significant chunk of that, so the country is important. This is likely why on a reported basis group revenues barely moved - rising 0.3 per cent - and operating profits dropped 5.2 per cent on the same terms. But the group saw a good performance in Europe with the UK washing and bathing division performing well while there was a good performance in Australia across personal care, beauty and food & nutrition, offsetting more difficult trading conditions in home care.
You can’t suppress the bubbles over at upmarket tonic maker Fevertree (FEVR) which has seen revenues rise more than two-thirds to £40.6m, propelling adjusted cash profits up 72 per cent to £12.4m. The company’s strong cash generation means it has almost doubled its dividend to 1.54p per share, while net cash rose to £18.6m - more than double the figure a year ago. New off-trade contracts and the fact its light tonic water is now served on easyJet flights has helped trading, while new importers in Spain and the Netherlands have been appointed to help continue the international push.
Carpets have taken flight at Victoria (VCP) this morning, with shares in the floorcovering group up nearly 13 per cent in early trading. Revenues doubled to £255m in the year to 2 April, while adjusted operating profits leapt 133 per cent to £21.9m. Accordingly, the group swung from a pre-tax loss to a profit. This was helped by the successful integration of the acquired businesses in the year - Quest Carpets and Interfloor Group - which management said had been “materially earnings-enhancing”. UK revenue grew by 115 per cent and Australia by 64.6 per cent. The company said the risk to the group of the UK's exit from the European Union would be mitigated by the UK division not being heavily reliant on imports or exports, and the Australia division being operationally and commercially independent.
Whether you like activist investors or not, shareholders in SABMiller (SAB) will be cheering their presence this morning after Anheuser-Busch InBev (ABI) upped the price of its bid for the UK-listed group. Each SABMiller shareholder will now be entitled to £45 per share - which represents a £1 increase on the previous offer. The revised terms value SAB at roughly £79bn. The all-cash offer represents a 53 per cent premium to SAB’s closing share price of £29.34 on September 14 last year - the day before news of the deal broke. A cash and share offer is also available. Activists had argued the fall in sterling post-referendum widened the gap in value between the two options and that the mostly stock alternative would benefit SAB’s two largest shareholders the greatest. ABI said it would not change its offer any further.
Huntsworth (HNT), a specialist in healthcare communications and public relations, posted a 21 per cent rise in adjusted pre-tax profits to £6.4m in the first half of 2016. The strong result reflected accelerating growth at Huntsworth Health, Red and Citigate Dewe Rogerson. The final stage of restructuring of its Grayling business is also underway, and should deliver upside in the next financial year.
Shares in Virgin Money (VM.) were up 7 per cent after the challenger bank grew its profits by almost three-quarters during the first half of the year. While mortgage balances were up 9 per cent to £27.7bn, credit card balances were the real growth driver. These increased by almost a third to £2.1bn.
Negative investment performance hindered Man Group (EMG) during the first half of the year. Negative movements of $2.2bn (£1.68bn), compared with a positive of $3.8bn last year, pulled down pre-tax profits to $98bn, from $280bn in 2015. However, net inflows of $1bn were an improvement on last year’s $2.6bn in net outflows. The hedge fund manager’s prospects continue to look dire.
OTHER COMPANY NEWS:
Shares in newly listed Time Out (TMO) rose 3 per cent after the media and e-commerce group guided towards constant-currency sales growth of 13 per cent in the first half of 2016. Management estimated that digital sales rose 33 per cent, offsetting a 2 per cent slide in print revenues.
Shares in XLMedia (XLM) climbed 5 per cent after the digital marketing services group estimated that turnover climbed 39 per cent in the first half of 2016, driving adjusted cash profits up 32 per cent to $17m. Its strong gains reflected continued diversification and product upgrades.
