UK investors to gains across most of the world's major stock markets, as investors cheered positive results from Apple, Arm, ITV and other large companies. But the mood was tempered by a torrid set of second-quarter earnings from Deutsche Bank. Read The Trader Nicole Elliott's morning update here.
IC TIP UPDATES:
Shares in Apple (US:AAPL) climbed 7 per cent in after-hours trading, as the technology titan bested market expectations for its third quarter to 25 June. Sales of iPhones fell 15 per cent to 40.4m units, as demand proved stronger than anticipated. More positively, revenues in the services business - home to the App Store, Apple Pay and iCloud - soared 19 per cent. Buy.
‘The X Factor’ broadcaster ITV (ITV) revealed an 11 per cent rise in sales in the first six months of 2016, which propelled adjusted cash profits up a tenth to £438m. Moreover, non-advertising revenues soared 26 per cent to £874m, reflecting strong demand for online, pay and interactive offerings. The strong showing sent its shares up 8 per cent in morning trading. Buy.
The Euro 2016 football tournament was both a boon and a hindrance to pub chain Marston’s (MARS). Management described the tournament as neutral from a business perspective: it had an adverse impact on its food-led pubs in the 16 weeks to 23 July, but helped its wet-led taverns overcome the patchy summer weather so far this year. Impressively, its own-brewed beer volumes jumped 14 per cent, proving this is an important aspect to the group’s business. Chief executive Ralph Findlay said he had “not seen any discernible impact on trading” since the EU referendum vote. Buy.
The decent slug of investment going into rejuvenating a slew of sites at Mitchells & Butlers (MAB) is having some impact. Chief executive Phil Urban said recently invested sites continued to grow sales in excess of 10 per cent in the year post-investment. But total sales in the first 43 weeks of the financial year to 23 July fell 1.3 per cent. Margins have fallen due to the introduction of the national living wage in April, too. But management has converted or remodelled 232 sites already this financial year, and opened five new sites. The group said it expected to increase its investment programme to complete around 250 conversions and remodels in the full year. Sell.
Burford Capital’s (BUR) business model keeps on delivering. Half-year results revealed a 110 per cent surge in income from litigation investment, which in turn led to an 88 per cent increase in income to $76.2m (£58.2m). Operating profits also more than doubled, while a 4 per cent foreign-exchange effect pushed the NAV total return to 16.1 per cent in the period. We keep our highly profitable buy call.
Copper prices remain challenged, but Antofagasta (ANTO) is doing what it can to keep costs down as low as possible. In the first half of 2016, the Chilean miner managed to bring copper cash costs before by-product credits down by 15 per cent, to $1.60 per pound, while net cash costs declined even sharper to $1.26. However, chief executive Iván Arriagada said the equivalent full-year figures would be “at the lower end of the range announced in January”. Long-term buy.
Shares in Brewin Dolphin (BRW) jumped 7 per cent after the wealth manager announced a 2.1 per cent increase in total funds during its third quarter to £33.5bn. Discretionary funds were up £1.2bn to £26.8bn year on year, but advisory funds fell by more than a quarter to £3.1bn. We stick with our buy tip.
Brooks Macdonald (BRK) grew discretionary funds under management by 12 per cent during the year ended June to £8.3bn. The fund manager intended to launch two new funds during its second half but was unable to due to uncertainty around the referendum. However, we still reckon our buy tip is moving in the right direction. Buy.
KEY STORIES:
Microchip designer Arm (ARM) posted an 11 per cent rise in sales in the first half of 2016, propelling adjusted pre-tax profits up 9 per cent to £268m. Its strong gains reflected double-digit growth in both processor licensing and royalty revenues in the second quarter, as it signed 25 licences and shipped 3.6bn ARM-based chips, a 9 per cent rise.
There are some allowances you need to make to digest precision engineering group Renishaw’s (RSW) results and the market seems to be happy to do so. Its shares are up nearly 2 per cent in early trading in spite of revenue dropping 12 per cent to £437m and pre-tax profits slumping more than two-fifths to £80m. But management says in 2015 it had a number of exceptionally large orders from customers in the Far East which generated “exceptional growth” in its metrology business. If you adjust for these, underlying revenue actually grew 4 per cent, or 6 per cent on a constant-currency basis. Encouragingly the dividend is up 3.2 per cent to 48p a share, which is perhaps where the market’s positive reaction comes from.
Reduced production from the Jubilee field (as well as the uncontrollable dip in prices) pared back revenues and operating cash flows at the half-year mark for Tullow Oil (TLW), but this picture is about to change. That’s because the enormous TEN project is scheduled to reach first oil at the beginning of August, and will comprise around 60 per cent of total production by the end of 2016.
Shares in FDM (FDM) climbed 3 per cent after the group, which trains IT professionals called ‘Mounties’ then places them with clients, posted a 16 per cent rise in sales in the first half of 2016. A 38 per cent jump in Mountie revenues underpinned a 23 per cent rise in total adjusted operating profits to £16.6m. The group continued to expand internationally and scale up its training facilities as well.
Shares in Quartix (QTX) climbed 4 per cent after the vehicle-tracking specialist posted a 26 per cent rise in sales, driving adjusted cash profits up 22 per cent to £3.4m. Fleet and insurance revenues climbed 16 per cent and 47 per cent respectively, as the group won new customers and expanded internationally.
Metro Bank (MTRO) reduced its losses during the first half of the year by 12 per cent to £18.1m, growing its operating income by half to £84.1m. However, the bank’s net interest margin fell by five basis points to 1.94 per cent - a worrying outcome given the prospect of a further base rate cut by the Bank of England. Management targets full profitability by the end of next year.
OTHER COMPANY NEWS:
The same factors buffeting the airlines are also weighing on online travel agent On The Beach (OTB). Management had anticipated a strong rush of late bookings this summer, but it now expects a weaker outcome in this segment as recent terrorism-related incidents souring demand. This will mean “significantly fewer consumers travelling this year”. But the group said it had no connection to Lowcosttravel group, which ceased trading this month. OTB said it had since seen a higher share of market traffic, thanks in part to more consumers wanting to book with an ATOL protected brand. In spite of the tough market conditions, management still expects to deliver results in line with estimates.
There's no let up for airlines at the moment and the first-quarter trading update from regionally focused airline Flybe (FLYB) says it all. There’s a softening in demand, an excess of capacity across the industry, a growing fear of terrorism and continued air traffic control strikes in France. While passenger numbers grew more than 9 per cent to 2.3m and passenger revenue was just shy of £156m (up 5 per cent), things are still tough. Load factors dropped by 4.1 percentage points to 70 per cent, which contributed to a 9.1 per cent decrease in revenue per seat to £47.95. Costs are down 3.2 per cent to £51.52 but this includes fuel - without it costs dropped just 0.3 per cent. Flybe said it had hedged 90 per cent of its dollar and fuel requirements for this financial year but the strength of the greenback since the referendum vote will have a “negative impact of £2.5m on full-year profit” if rates remain the same and all other factors are equal.
Rentokil (RTO) announced a tie-up with Google that will see the pest-control specialist extend its offering in digital pest control. Rentokil has more than 20,000 digital devices such as pest sensors running in 12 countries that have collected 3 million bits of data. This data sits on Google’s Cloud Platform and allows Rentokil to identify a problem at its customer’s sites quickly as well as providing a wealth of useful predictive data. Rentokil describes the technology as “highly scalable.”
