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News & Tips: ABF, Aberdeen Asset Management, SVG & more

Equities have taken a sharp tumble
September 12, 2016

The growing expectation of monetary tightening in the US has led to a significant withdrawal from risk assets by investors this morning, sending the FTSE100 1.5 per cent lower. Click here for The Trader Nicole Elliott's latest thoughts.

IC TIP UPDATES:

The food and clothing conglomerate Associated British Foods (ABF) is leading the FTSE downwards this morning with the shares off some 6 per cent in early trading. While the group expects full-year earnings per share to be marginally ahead of the last financial year, a new accounting standard with which to value its Illovo sugar business means this financial year’s operating profits will be reduced by £8m. And FY2015’s results have been restated £10m lower to £1.08bn and EPS at 101.5p. If sterling’s weakness against the euro and dollar persists, management says there would be an adverse transactional effect on the profit margin on Primark's UK sales, a favourable transactional effect on British Sugar's margins and a translation benefit on group profits earned outside the UK. Elsewhere, the ongoing squeeze being seen in bond markets, with yields, which move inversely to prices, continuing to fall, the company now has a pension deficit of roughly £200m against last year’s small surplus. And like-for-like sales for Primark are expected to be down 2 per cent thanks to “unseasonable weather”. Total sales are expected to be up 9 per cent at constant currency though as it continues expanding throughout Europe and the US. Sell.

Abcam (ABC) full-year results are as solid as ever and yet seem to have surprised the market this morning. Analysts forecasts of big hits to profitability caused by recent acquisitions and capex have not materialised and the antibody specialists continue to see strong growth at the top line. Shares jumped 3 per cent in early trading. Buy.

Results from Action Hotels (AHCG) have not pleased the market quite so much and shares are off 3 per cent this morning, probably due to a slight fall in group net asset value. But revenue and adjusted cash profits are both up by 18 per cent and portfolio growth remains on track. We continue to rate these shares a buy.

Infection control company Tristel (TSTL) has had its surface disinfection products approved for use in Australia. The approval has been a long time coming but offers great opportunities for sales growth considering the market is very similar to that in the UK - where Tristel has achieved considerable success. Tristel already has a presence in Australia and so the roll-out of new products isn’t expected to come at too much of a cost. Shares are up 3 per cent in early trading. Buy.

High-yielding copper producer Central Asia Metals (CAML) today issued a characteristically strong set of half-year numbers, with copper sales up 24 per cent to 6,355 tonnes, fully absorbed unit cash costs 48 per cent lower at $0.97 per pound, and a cash profit margin 3 percentage points higher at 56 per cent. If only the copper price were higher, then investors would be entirely satisfied. Our buy recommendation is under review.

Sell recommendation Aberdeen Asset Management (ADN) has been told by the Financial Conduct Authority that it must increase its regulatory capital minimum level by £40m to £475m after the regulator changed the way it models risk.

KEY STORIES:

As we reported last week, private equity activity has ramped up in the UK markets of late and today sees a notable takeover offer posted from Harbourvest for fellow private equity investor SVG Capital (SVI). Pitched at 650p a share, the offer values SVG at just north of £1bn and has gathered acceptances of 43 per cent of shareholders already. SVG has advised shareholders to sit on their hands until it publishes results next week.

Profits were beefed up at palm-oil focused MP Evans (MPE) thanks to the sale of its cattle business North Australian Pastoral Company. Management netted $11.7m (£8.8m) which provided mitigation to a 9 per cent fall in its palm oil crop, which suffered due to extremely dry weather. The group said it is aiming to develop an additional 14,000 hectares of land for palm oil planting for itself and its smallholders and in the long term acquire even more land. The company’s palms are on average 7.9 years old, which management said was young and so should, under normal conditions, still increase yields per hectare. Palm oil prices rose from the low levels seen at the end of 2015 to above $700 per tonne in mid-March. The average Rotterdam c.i.f price for the six-month period under review was $668 per tonne compared with $673 for the equivalent 2015 period.