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News & tips: National Express, 3i, Shoe Zone & more

World markets recorded early gains even as a proposed EU-Canada trade deal frayed at the seams
October 25, 2016

UK investors awoke to a sea of green across major stock indices, as traders cheered a positive survey of business confidence in Germany. In her morning update, The Trader Nicole Elliott highlights a fierce critic of UK financial regulation, and the race to salvage a trade deal between the EU and Canada.

IC TIP UPDATES:

Interim results from Whitbread (WTB) are mostly as the market expected, except for a slight concern over margins for the group's coffee brand Costa. While the chain reported like-for-like sales growth of 2.3 per cent for the six months to 1 September 2016, underlying operating profits there fell 4 per cent due to "increased investments", which includes the introduction of the New Living Wage in October last year. Our recommendation is under review.

Like-for-like sales are down 2.9 per cent at Carpetright (CPT), while lower gross margins are a result of currency movements, increased market competition and the sales mix. However, management is still comfortable with full-year profit forecasts of £18.5m, although that hasn’t stopped some City analysts from trimming their own numbers this morning. Our recommendation is under review.

St James’s Place (STJ) grew funds under management by almost £17bn year on year during the three months to the end of September. Net inflows of £1.7bn and a positive investment return of £4.2bn to total funds under management to £71.4bn. Chief executive David Bellamy said it was "business as usual" for the wealth manager, despite the third quarter falling between the referendum and the Prime Minister’s first planning speech for 'Brexit'. The shares are now up on our buy tip and this announcement. Buy.

Shares in transport group National Express (NEX) rose close to 4 per cent this morning following news that both revenue and profit are up year on year at constant currencies, with operating profit up 9 per cent over the third quarter driven by particularly strong performances abroad. Foreign currency movements have been particularly helpful to overseas earnings. Buy.

A third-quarter production update from Anglo American (AAL) was largely in line with expectations, but a 4 per cent year-on-year increase in copper equivalent production was again welcomed by the market. As a result, shares in the miner rose another 4 per cent this morning, regardless of the slow progress on asset sales. Our sell call is under review.

Despite improving sales, a weaker growth outlook for GKN (GKN) caused shares in the engineering group to fall 3 per cent this morning. While sales in the nine months to September jumped 21 per cent to £6.9bn, revenues were largely boosted by favourable currency movements and acquisitions. We are reviewing our buy call.

KEY STORIES:

Shares in bargain footwear group Shoe Zone (SHOE) have leapt more than 15 per cent in early trading, despite a largely unsurprising pre-close trading update. Sales are still expected to be below last year’s level, reflecting ongoing store closures, but profits are expected to be "marginally ahead" of the prior period.

Shares in travel firm On the Beach (OTB) received a healthy 5 per cent boost this morning following a profit upgrade there. Bosses say expected revenue growth of 12 per cent is slower than expected, but pre-tax profits are expected to be slightly ahead of the top end of market forecasts. It seems demand for beach holidays has remained resilient despite a sway of terrorist attacks, which were expected to dampen enthusiasm for travelling.

3i (III) has agreed to sell its debt management business to Bahrain-based alternative investor Investcorp, expected to complete by the end of March. The deal will generate £222m in cash proceeds for the investment manager and an exceptional profit on disposal of £36m. Management said the debt management business fits less well with its broader strategy as the group seeks to focus on growing its infrastructure business and managing its private equity portfolio.

Fresh from August’s profit warning, and the ongoing pain in the shipping sector, news that Braemar Shipping Services (BMS) both maintained its interim dividend and moved into a net cash position by the end of August came as a surprise. Management’s expectations for the full year are unchanged, suggesting conditions have not materially worsened since August.

Sirius Minerals (SXX) needs a lot of money to get its North Yorkshire polyhalite project off the ground, but the Aim-listed company has started with the sale of a mining royalty to Australian royalty group Hancock Prospecting. Under the terms of the deal – which comprises $250m in cash and $50m in Sirius equity and will finalise once $630m has been spent on Stage 1 construction – Hancock will take 5 per cent of the revenue on the first 13Mt/a of production.

Shares in Pantheon Resources (PANR) remain a long way from the highs hit earlier this summer, but the Texas-based driller saw its stock rise 15 per cent this morning after announcing the discovery of "a potentially significant reservoir" in the VOBM#3 well, Polk County. Chief executive Jay Cheatham said that once flow testing at VOBM#3 is completed, the group will be ready to finalise arrangements for a gas processing facility.

OTHER COMPANY NEWS:

Car retailer Pendragon (PDG) says it has not experienced any negative impact on trading since the June referendum. Furthermore, like-for-like sales grew 5.7 per cent in the third quarter, versus a strong comparator, while group underlying profit increased by 6.3 per cent. The company said it was "particularly pleased" with revenue growth from used vehicles, which accelerated to 8.3 per cent on a like-for-like basis.