Most of the UK's key stock indices registered gains in morning trading, but other world markets faltered amid uncertainty over when exactly the US Federal Reserve will hike interest rates. The minutes from its latest meeting noted fewer short-term economic challenges and a robust labour market. Read The Trader Nicole Elliott's morning update here.
IC TIP UPDATES:
It’s no holiday for tour operators right now as a confluence of factors buffet the sector. And Thomas Cook (TCG) appears to be no different. The group has seen revenues drop 8 per cent in the three months to June 30 due in part to terrorist incidents in Turkey and in western Europe. And underlying operating profits plummeted to £2m compared to £30m in the respective period in 2015. A beacon of light, perhaps, was the rise in margins which were up 70 basis points to 21.3 per cent thanks to higher-margin products being on offer. Also, while bookings are down 5 per cent overall, interest in the Canaries has spiked 18 per cent and 30 per cent for flights to the US. What seems to be key is this performance was in line with expectations and the stock is up 6 per cent in early trading as a result. Buy.
Despite the rally in the share prices of London’s two super majors, this week has been a reminder that energy prices in the first half of 2016 were totally unsustainable. If anything, Royal Dutch Shell (RDSB) appears to have been harder than BP, as interim results showed an 80 per cent drop in post-tax income to $1.7bn. The contribution from the assets acquired in the takeover of BG helped to boost second-quarter production by 28 per cent to 3.5m barrels of oil equivalent a day, but this couldn’t halt a 3 per cent slide in the shares following publication of these numbers. Long-term income buy.
Catering provider Compass Group (CPG) has seen strong growth in the US and Europe balance that of its more challenged rest of world division. There was organic revenue growth of 8.3 per cent in the three months to 30 June thanks to strong growth in all sectors except oil and gas. In Europe, organic revenues were up 3.7 per cent in the quarter and efficiency savings helped boost margins here too. But the rest of world saw organic revenue decline 2.8 per cent in the quarter as the commodity downturn continued to bite. Trading in its offshore and remote segment was "challenging" with revenues down 9 per cent in the quarter although its non-commodity based business saw sales rise 4 per cent. Buy.
The toppings just keep coming over at Domino’s Pizza (DOM) which stacked up its eleventh successive quarter of double-digit, like-for-like sales growth. The group opened a record 31 stores in the half year to 26 June. Encouragingly, e-commerce total system sales were ahead by 25 per cent with mobile sales up 35 per cent. Its recent joint venture move to buy Germany’s Joey’s Pizza also helped the numbers and its £24m transaction to acquire significant minority interests in the Icelandic, Norwegian and Swedish businesses has now completed. Buy.
The rollercoaster of the currency markets seems to have suited adventure park owner Merlin Entertainments (MERL). Revenue growth at actual exchange rates of 5.3 per cent was more than double the rate on a constant-currency basis as its non-sterling earnings translated positively into the pound. This compares to a 1.1 per cent decline in like-for-like sales, which seems to have caught the market’s attention more, given the stock is down 3 per cent in early trading. Legoland was a stand-out performer with turnover up 11 per cent while sales at Midway Attractions rose 7 per cent. But the accident at its Alton Towers site in June last year is still having an impact. The Resort Theme Parks Operating Group, within which the park sits, continued to experience lower footfall following the accident as revenues in the division declined by 7 per cent in the period or 10.2 per cent on a like-for-like basis. Buy.
There are some fresh screens over at Cineworld (CINE) as the group announced it had bought five cinemas from Empire Cinemas. As part of the transaction, the latter company is buying Cineworld’s three-screen cinema in Haymarket. The purchases include the nine-screen Leicester Square multiplex in London as well as an 18-screen site in Basildon. The deal is expected to be marginally earnings-enhancing this financial year but provide a "high single digit earning enhancement" in the 2017 financial year. The £94m to be paid by Cineworld will be paid for half in cash and half in new shares, which will be issued to Empire in five installments during a 12-month period.
The engines are ticking over at National Express (NEX) which has seen group revenues rise more than 10 per cent on a constant currency basis in the half-year to 30 June thanks to the start of its German rail operations and recent North American and Spanish acquisitions. Management said two-thirds of earnings were generated outside the UK and no single contract contributed more than 4 per cent of group operating profit. This could be important if there is an economic downturn in the UK following the EU referendum vote. Free cash flow rocketed to £66m from £27m in the respective period in 2015 and the interim dividend has been pushed up 5 per cent to 3.87p.
Payment services specialist Paypoint (PAY) said that trading in the three months to end-June was in line with expectations with transactions ticking up 1 per cent to 173 million. Revenues were up 3 per cent to £51m. The figures exclude the online payments business, which was sold in January. Paypoint noted that the sale of the mobile payments business is ongoing. The number of retail sites dropped by 191 since the year-end to 28,896, as the company prepares to roll out its new PayPoint One terminal. Site numbers are expected to increase in the remainder of the year. Paypoint is still engaged in discussions with Yodel over its Collect+ parcel business. We remain sellers due to concerns over the company’s core energy and bills payment business.
Fashion retailer JD Sports (JD.) has released a succinct pre-close trading update to say the least. Only a matter of lines long, the group said the strong performance has continued since its AGM in June, and the company now expects to deliver pre-tax profits for the year ending 28 January 2017 at the upper end of previous guidance. That range is between £170m and £190m. We remain buyers.
There was a useful 4 per cent bump in the shares of KAZ Minerals (KAZ) for anyone who heeded our underperforming buy call from 2014. Commissioning of the Bozshakol mine led to a 43 per cent boost in copper-cathode production to 52.6kt in the first six months of 2016, and more growth is expected in the remainder of the year. As a bonus, the company also managed to more than double gold production, thanks to a big contribution from the Bozymchak mine. Buy.
Three bits of news for instrumentation and controls specialist Spectris (SXS) today. First was its half-year report, which showed a 6.9 per cent like-for-like decline in operating profits to £68.9m after adjusting for the positive currency swings and acquisitions. Acquisitions are clearly part of management's solution for addressing this fall, however, proof of which came in the €15.8m purchase of German acoustical and vibration quality analysis firm DISCOM. Third, the company is switching its auditor from KPMG to Deloitte, following a competitive tender process. Our buy recommendation is under review.
Results from Henderson Group (HGG) show assets under management (AUM) up 3 per cent to £95bn for the six months ended June. The group also reported net outflows of around £2bn, with underlying pre-tax profits down to £101m (2015: £117m). That aside, the interim dividend rose to 3.2p compared to 3.1p this time last year. Our recommendation will be reviewed today as part of the daily results coverage.
Digital takeaway service Just Eat (JE.) has released another set of solid numbers, reporting a 59 per cent increase in revenues to £172m and underlying cash profits of £53.4m, up 107 per cent. All of the group's European businesses are now turning a profit - including Benelux - and bosses there reckon international revenues (which account for around a third of the total) could give the top line a marginal boost this year. We remain buyers.
Headline numbers from pharma behemoth AstraZeneca (AZN) do not look good, but that's to be expected. The first half has seen the loss of a patent for Crestor and Nexium, two of the group’s biggest-selling drugs. The key figures actually came in the five 'growth platforms' as identified by chief executive Pascal Soriot last year, which have all had a strong performance in the first half. Shares have nudged up in early trading. Buy.
Growing its appointed representative numbers to just shy of 900 helped Mortgage Advice Bureau (MAB1) increase sales by more than a third during the first six months of the year. Management also confirmed hiring of appointed representatives shows no sign of slowing following the referendum. The shares are up a fifth. We stick with our buy tip.
Shares in International Personal Finance (IPF) tumbled 17 per cent following a disappointing set of first-half results. While customer numbers increased marginally, pre-tax profits declined by almost a third to £31m. Intense competition and regulation in its European markets has hindered profit growth. We stick by our sell tip.
Schroders (SDR) saw pre-tax profits slide £8m to £282m during the first half of the year, although the asset manager generated net inflows of £0.7bn. This brought assets under management up to £344bn from £310bn the previous year. Buy.
Lloyds (LLOY) plans to cut a further 3,000 jobs and close 200 branches as it accelerates its cost-cutting. The banks grew pre-tax profits to £2.5bn during the first-half, up from £1.2bn the same time the previous year. We place our recommendation under review.
KEY STORIES:
Shares in Premier Farnell (PFL) soared 17 per cent after the Leeds-based electronics group, which was set to be acquired by Swiss peer Dätwyler, recommended a superior counter-offer from US peer Avnet. The new offer of 185p in cash per share is 12 per cent higher than Dätwyler's offer, valuing the group at about £691m.
A big puff from global brands such as Lucky Strike helped ciggie maker British American Tobacco (BATS) gain more market share against its rivals. Group cigarette volume was 332bn, an increase of 3.4 per cent on the same period last year. Cigarette market share in its key markets grew 30 basis points. Operating profits fell 1.6 per cent on a constant-currency basis to £2.2bn but the market seems unconcerned about this - likely because the dividend is up 4 per cent at 51.3p.
Shares in BT (BT.A) climbed 3 per cent after the telecoms titan's underlying sales crept up 0.4 per cent in the first quarter to 30 June. But underlying cash profits dipped 2 per cent, reflecting the roll out of BT Mobile handsets following the group's takeover of mobile carrier EE.
The board of Pinewood (PWS) is recommending a possible cash offer from PW Real Estate Fund III. The deal has already received nearly 66 per cent acceptances. The offer - 560p in cash per share and a dividend of 3.2p - represents a premium of 31 per cent to Pinewood's average share price for the 20 days before it launched a strategic review on 10 February. But it was less than investors expected: they sent Pinewood’s shares down 2 per cent to 571p in early trading.
Shares in Sky (SKY) climbed 5 per cent after the pay-TV and broadband giant posted a 7 per cent rise in sales in the year to 30 June, which drove adjusted operating profits up 12 per cent to £1.56bn. It's also on track to realise £200m in cost savings by 2017, and is now targeting a total of £400m by 2020.
Strong progress across its four business areas pushed underlying sales up 4 per cent at Relx (REL) in the first half of 2016, driving the professional information and analytics giant's adjusted operating profits up 6 per cent to just over £1bn. Management expects to deliver growth in underlying sales and earnings in 2017 as well.
Shares in Informa (INF) dipped 2 per cent after the business information group posted a 2.5 per cent rise in organic sales in the first half of 2016, driving adjusted operating profits up 6 per cent to £202m. The group benefited from product investments and the scale benefits of US expansion.
It hasn't been the easiest year for drinks major Diageo (DGE) with reported sales and pre-tax profits down 3 per cent for the year to 30 June. But a turnaround plan by the group does mean it is now on course to meet its target of single- to mid-digit top-line growth in 2017. The stock has performed well post-Brexit, with its international earnings acting as an allure for investors. In these results, North America performed particularly well with organic net sales up 2.8 per cent to £10bn. They had been flat the prior year.
'Discipline' was the watchword in Anglo American's (AAL) half-year results, appearing no less than five times. In fairness, with commodity prices still at an uncertain point in the cycle, a reduction in capital expenditure and working capital is probably the only way the miner can bring net debt below $10bn by the end of this year. As it was, results were distinctly mixed, as higher-than-forecast net income was more than offset by larger impairments to the balance sheet.
Diversified miner BHP Billiton (BLT) now expects full-year figures to include a provision of up to $1.3bn for the Samarco tailings dam disaster. This figure, which matches the now suspended Super Court framework obligation, reflects the "ongoing uncertainty surrounding the nature and timing of a potential restart" of the iron ore operations, according to BHP.
The fortunes of Genel Energy (GENL) are still largely predicated on the regularity with which its main customer, the Kurdistan Regional Government, can make payments. The good news is that these previously erratic receipts are starting to smooth, with $193m in cash proceeds paid out to Genel since September 2015, allowing the oil producer to develop its work programme in the first half of 2016.
Interim results from car distributor Inchcape (INCH) truly show a global business in action. Out of 27 territories, the weak spot was Hong Kong, but South Asia and even Australia continue to perform very strongly. Encouragingly, in a post-Brexit environment, the UK only accounts for 18 per cent of profits, which could help insulate the company from any downturn in domestic markets, recession or not. More to follow.
OTHER COMPANY NEWS:
Shares in Sophos (SOPH) climbed 2 per cent after the cyber security group grew constant-currency sales by 12 per cent in the first quarter to 30 June, driving adjusted cash profits up 55 per cent to $25.6m (£19.4m). Both enduser and network security billings grew by more than 20 per cent, as the group benefited from a material contract with an existing European customer.
Outgoing Bonmarché (BON) chief executive Beth Butterwick has revealed like-for-like sales across the business fell 3.6 per cent in the first quarter, compared to a 3.8 per cent rise this time last year. Ms Butterwick blamed poor weather at the start of the summer, and therefore a lack of demand for seasonal products. However, the group has left full-year expectations unchanged on the assumption that weather patterns - and thus trading conditions - will normalise as the UK enters Autumn.
