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News & Tips: Carclo, Chesnara, 888, Gulf Keystone & more

Equities continue to struggle for any definitive momentum
August 31, 2016

The summer lull continues with London equities up marginally in morning trading but without any great conviction. Click here for The Trader Nicole Elliott's latest thoughts on the markets.

IC TIP UPDATES:

The share price of Carclo (CAR) recorded a double-digit fall after the specialist plastics manufacturer confirmed that a likely reduction in its available distributable reserves means that it will be unable to pay out its final dividend. The fall in reserves was linked to the post-Brexit fall-away in bond yields, so the FTSE SmallCap constituent will be unable to reward shareholders due to legal and accounting constraints. Under review.

Low interest rates took a chunk out of Chesnara’s (CSN) pre-tax profits during the first-half of this year as the value of liabilities associated with its S&P business increased. However, economic value - a measure of the value of existing insurance business plus adjusted net asset value of non-insurance business - also increased to £460m from £453m. Buy.

Arrow Global (ARW) hopes to capitalise on low yields on offer from government and corporate bonds, refinancing its outstanding £220m bond in the hope investors will flock to secure the higher yield on offer. The group - which purchases distressed debt - grew its pre-tax profits by a quarter during the first half of the year, as debt collections picked up by more than a third. Buy.

The waves caused by the UK referendum rocked many stocks and the ferrys of Irish Continental Group (ICGC) weren’t any different. But the shares have been steadily recouping their lost ground and its half-year results seem to be helping. Increased car and freight volumes alongside lower fuel prices have pushed the shares up nearly 3 per cent this morning. The group said the EU vote had initially knocked tourism bookings but that these had recovered and were broadly in line with expectations over the key summer months. Interestingly, management said the referendum had yet to have an impact on roll-on, roll-off freight volumes, meaning there doesn’t appear to be a discernible dent in trade just yet. Net debt dropped a whopping 57.3 per cent to €19m but its pension deficit rose to €32.8m from €5.1m at the end of 2015. Buy.

Shares in Gulf Marine Services (GMS) leapt 11 per cent this morning after half year results showed a 20 per cent jump in adjusted net profits to $41.9m. Oil producers’ continued cuts to capital expenditure means demand for the company’s self-propelled self-elevating support vessels remains “uncertain”, and three of Gulf Marine’s contracts will be terminated early in the second half of the year. However, GMS has this month won a one year contract for one of its mid-size class vessels with a MENA-based national oil company. Our buy recommendation is under review.

KEY STORIES:

A rise in the number of members and how much they’re spending per head meant The Gym Group (GYM) has kept pumping iron. The group boasted average membership of 420,000 throughout the year, a rise of nearly 23 per cent on the same six months last year. There are now 80 sites thanks to six openings so far this year and management said it remained on track to open between 15-20 in total in 2016. The strong cash generation also meant net debt fell to £2.5m meaning it could soon be free of borrowing and perhaps more importantly it announced its maiden dividend of 0.25p per share.

There’s clearly nothing like a football tournament to get punters flashing their wallets as sports revenue at online bookie 888 (888) rose 63 per cent in the first six months to $25m (£19m). The Euro 2016 championship was cited as a major reason for the segment’s strong performance although its other key revenue stream - casino - also secured a winning streak. Turnover here rose a third to $137.4m. Encouragingly, the amount of revenue coming from regulated markets rose to 63 per cent of group sales from 58 per cent this time last year and the popularity of its mobile offering remains robust with 56 per cent of UK sales now coming from mobile devices.

In spite of some doom and gloom about post-Brexit Britain, it doesn’t seem our appetitie for going to the pub has been dampened. Pub group Punch Taverns (PUB) has seen the average profit per pub rise 4 per cent, doubly encouraging given recently-installed management there overhauled the way the group operates. It allowed its publicans, the majority of whom have operated under the so-called beer tie, to opt for a new model. This is called the retail contract option, which is where Punch retains the sales and cost of sales but pays the publican a percentage of this which is used to remunerate staff. A total of 177 pubs have opted to run under this model, with 97 of these already doing so or close to converting. Another key development is the hefty £225m reduction (16 per cent) in net debt, which has brought the net debt/cash profits ratio down to 6.6 times - down from 7.2 times last August. And it has announced an additional £83m of property and land sales on top of those it had previously announced.

It doesn’t look like it’s been a comfortable stay at PPHE Hotel Group (PPH) with pre-tax profits (excluding various one-offs) dropping 61 per cent to £4.2m. A softer performance in the UK was the main operational reason, with cash profits here decreasing by £3.4m. Various other factors such as foreign exchange and costs relating to its acquisition of a controlling interest in its Croatian business - which is heavily second half weighted - also knocked the numbers. On a like-for-like basis, revenue per available room, known as RevPAR, was flat at £73.2 but the group’s total RevPAR dropped 16 per cent to £73 due to the Croatian acquisition.

A 10 per cent hike in the interim dividend was not enough for the market to cash out on an otherwise impressive set of results for James Fisher Group (FSJ). Given the decline in activity levels in the offshore oil division, the marine service operator made excellent ground to build the pipeline in its specialist technical, marine support and tankships segments and keep underlying operating flat at £19.9m.

Office fit out specialist Styles & Wood (STY) was in demand this morning after it announced it had been appointed to a framework contract to deliver the real estate demands of a major international bank in the UK over the next five years. The framework, which includes data centres, office and retail properties, could be worth up to £100m over the period.

Exova (EXO) grew constant-currency sales by a tenth in the first half of 2016, driving adjusted cash profits up 9 per cent to £23.4m. The testing and advisory specialist performed well in markets such as aerospace and health sciences, but trading worsened in the oil & gas and industrials sectors.

OTHER COMPANY NEWS:

Gulf Keystone Petroleum (GKP) has launched an open offer to shareholders in a bid to raise $25m at 0.8314p a share, a part of a balance sheet restructuring that will see the majority of the equity awarded to debt holders.

In other oil company news, Aim multi-bagger Sound Energy (SOU) has reached the first casing point in the drilling of its second well at Tendrara, Morocco. Following the successfull setting of the casing at a depth of 462m, Sound now plans to drill a second casing point at 2,150 metres.

Aim-listed Stride Gaming (STR) has completed the acquisitions of 8Ball, Netboost Media and the Tarco Assets. The group raised £27m earlier this month to fund the purchases, which make it the fourth largest bingo operator in the UK by taking its number of brands in the UK to 105 and taking its share of the UK online bingo market by number of sites from 2 per cent to over 25 per cent. The group listed on Aim in May last year.