Equities have started the day reasonably positively after British American Tobacco launched a mega-bucks merger offer for US partner Reynolds.
IC TIP UPDATES:
A third quarter update from InterContinental Hotels (IHG) shows Revenue per Available Room (RevPAR) up 1.3 per cent for the period, or up 1.8 per cent for the year to date. The group opened 7,000 in the period, with the Americas performing strongly, while Europe RevPar fell flat. The US dollar is causing a bit of havoc with reported figures, brining group RevPar growth to nil when reported at actual exchange rates. Bosses there say currency markets continue to be volatile and so foreign exchange rates are expected to have an impact on 2016 reported profit. We remain sellers.
Gambling software group Playtech (PTEC) has announced a minor acquisition this morning. It will spend £14.9m on hardware solutions provider ECM Systems, which supplies software and support services to the retail bingo market, including major operators Gala Leisure and Mecca Bingo. Buy.
Managed IT services provider Computacenter (CCC) posted a 2 per cent decline in constant-currency sales in the nine months to 30 September, as services revenue dipped 1 per cent and supply chain turnover fell 2 per cent. Management stood by its full-year expectations. Under review.
Oil and gas explorer Hurricane Energy (HUR) announced plans yesterday afternoon to raise £70m through a placing with institutional investors at 34p a share while also raising £4.4m through an open offer to investors. Key shareholders Kerogen and Crystal Amber are subscribing for £31.6m worth of shares. The proceeds will be used for development of the Greater Lancaster fields and also to support Hurricane’s drilling programme. We retain our buy rating.
Shares in Michelmersh Brick (MBH) fell 17 per cent after the specialist brick manufacturer warned that profits for the year to the end of December will be at or around a similar level to the previous year. Increased competition has meant that average selling prices will not now rise to levels previously anticipated. In fact, average selling prices have been falling across the market this year, and joint chief executive Frank Hanna reckons there will be little or no recovery in prices at the start of 2017. We downgrade to hold.
Veterinary pharma group Dechra (DPH) has seen its shares nudge up this morning ahead of its AGM today. Ahead of the meeting, the group said first quarter trading had run in line with management expectations, and confirmed its recent £31.3m acquisition of Australian company Apex Laboratories is now complete. It may also be worth noting that chairman Michael Redmond retires today, making way for Tony Rice. We remain buyers.
KEY STORIES:
Main news of the day goes to British American Tobacco (BATS), which has announced its intention to merge with American giant Reynolds - of which it already owns 42.2 per cent - through the acquisition of the remaining 57.8 per cent in the company. The proposed deal offers Reynolds shareholders $56.50 (£46.17) per share, of which $24.13 would be in cash and $32.37 would be in BAT shares. That represents a premium of 20 per cent over the closing price of Reynolds common stock on 20 October 2016. BAT bosses say they expect the deal to be earnings accretive in the first year. A simultaneous interim management statement from the London-listed cigarette maker said year-to-date revenues are up 8.1 per cent at constant rates of exchange, or 6.2 per cent on an organic basis. Volumes are also up in key markets, along with market share.
Shares in Acacia Mining (ACA) jumped more than 10 per cent this morning following a third quarter updated from the company. The company has swung to a pre-tax profit for the period, and said full-year gold production is now anticipated to be around 5 per cent higher than the top end of previous production guidance. Gold production for the quarter totaled 204,726 ounces compared with 163,888 ounces this time last year.
Immunodiagnostics Systems (IDH) is another big mover today, although this time the shares have moved down 18 per cent following a first half update. Bosses there say they expect a like-for-like revenue decline of 9 per cent for the first half, although they say the movement is largely the fault of currency exchange rates. Overall, group revenues are expected to be £19.5m versus £19.4m this time last year.
OTHER COMPANY NEWS:
There hasn’t been much movement in Sierra Rutile (SRX) shares this morning, as doubts linger over its 36p a share merger with Australian mineral sands giant Iluka Resources (Aus: ILU). A third quarter update stuck strictly to the operational, reporting a 24 per cent increase in rutile production from the previous quarter and a 27 per cent increase in rutile production from the same period in 2015. The group produced 43,081 tonnes of rutile in the period, as the Gangama Dry Mine continuing to perform above plan.
