After an initial slide yesterday, equities had recovered by the end of play on hopes of a smooth transition to a more conciliatory president Trump than the election campaign suggested. Such sentiment has continued today with shares up strongly. Click here for The Trader Nicole Elliott's latest take on the markets.
IC TIP UPDATES:
Shares in ITV (ITV) rose 3 per cent after the television broadcaster and producer revealed a 15 per cent rise in non-advertising revenue in the nine months to 30 September. Online, pay and interactive sales leapt 22 per cent, while ITV’s studio business posted an 18 per cent rise in turnover, driven by acquisitions. Buy.
The bitter deflationary fight in Dairy Crest’s (DCG) end markets - such as supermarkets - is evident in the group’s top line. Sales dropped 7 per cent to £190m largely down to the fact three of its four brands suffered price cuts while Cathedral City also witnessed a drop in volume growth. That said, total volumes grew 2 per cent thanks to a strong showing from its calorie-free cooking oil product Frylight and Country Life butter. While sales were down though, the fact levels of capital expenditure are falling (£10m this half compared to £35m for the comparable half) means profits held up. Pre-tax profit rose nearly a fifth to £15.6m and with dairy markets showing some signs of inflation after a stubborn period of deflation, things could improve further. Like many other companies, falling bond yields have expanded its pension deficit and it is in discussions to adopt a revised funding plan. Buy.
It’s all gone off with a bang at sausage skin maker Devro (DVO) this morning but not in a good way. Management has said while expectations for full-year operating profits remain unchanged, challenging conditions in Latin America and changes being made to its manufacturing footprint will have an impact on margins. Not only this, but its new factories in China and the US are fully operational but based on current sales trends, the group thinks there will be an under-utilisation of capacity compared to what it expected in 2017. This will have a further impact on margins and underlying operating profits for 2017 will also be lower than expected. An additional £3m of exceptional costs will be incurred in 2016, on top of the £8m already expected. The shares have responded by falling a fifth to 180p. We put our buy rating under review.
Shares in clothing chain SuperGroup (SGP) leapt 8 per cent this morning following a pre-close trading statement from the company, ahead of interim results in early January. Group revenues are up more than 30 per cent, with retail like-for-like sales showing a 12.8 per cent growth rate. Sales have benefitted from the weak pound, and an increasing number of customers placing orders via the group’s website. Wholesale revenues also grew by an impressive 44 per cent. Management still expects half-year pre-tax profits to fall in the range of £20m-£22m. We remain buyers.
Shares in Aldermore (ALD) rose 5 per cent after the challenger bank reported a 15 per cent increase in net loans during the first nine months of the year to £7.1bn. New lending to mortgage customers was up a quarter, while there was a 13 per cent increase in new loans to business finance customers. The shares are now back up on our buy tip, which we are sticking with.
National Grid (NG.) experienced a 1 per cent decline in pre-tax profits at constant currency after its French interconnector project generated fewer returns. However, the group has stepped-up its activity upgrading US gas and electricity infrastructure, helping boost operating profit by a quarter. Increased depreciation and costs meant operating profit was down for the UK gas distribution business by 6 per cent. The group is proceeding with the sale of a majority stake in this business. Buy.
A week ago, we tipped Ophir Energy (OPHR) convinced that the oil and gas group would make a final investment decision on its enormous Fortuna liquefied natural gas project offshore Equatorial Guinea before the end of the year. While a decision is now not expected until early next year, the project appears to have been given the greenlight this morning, after Ophir announced the formation of a joint venture with partners Golar and Schlumberger. The agreement, which requires shareholder approval, will facilitate the financing, construction, development and operation of the plant. With the shares 12 per cent ahead on the news, we remain buyers.
A combination of lower interest and tax payments, and a strong performance from the Pullman business, led to a big uptick in first-half year profitability at logistics group Wincanton (WIN). The shares soared by a tenth in early trading today, though our buy call is under review.
As expected, AstraZeneca’s (AZN) third quarter has been a struggle. The entry of generic competitors to top selling drug Crestor hit revenues hard which transferred into a 13 per cent decline in core operating profit at constant currencies. With no major new revenues coming through to make up for that loss in Crestor sales it has become more apparent how important 2017 will be in terms of the regulatory approval of new medicines. Astra’s pipeline is very impressive which keeps us positive about the future of the company. Buy
KEY STORIES:
The furore over payments connected to Rio Tinto’s (RIO) involvement in Simandou deepened this morning, after the Financial Times said it had seen emails from 2011 that show then-chief executive Tom Albanese and iron ore head Sam Walsh discussing “a request to pay $10.5m to [a] French consultant for his ‘very unique and irreplaceable services and closeness to the president’ of Guinea”. The diversified miner, which is selling its stake in Simandou, yesterday told the market that it had notified US and UK regulators and had suspended energy and minerals chief Alan Davies. Shares are up by another 3 per cent this morning on soaring copper prices and expectations of a construction boom following the US presidential election result.
New chief executive Patrick Dardis will likely be raising a glass tonight after a solid set of numbers from his company Young & Co’s (YNGA). Mr Dardis isn’t new to the group though, having joined it in 2002 so it’s very much business as usual. Sales jumped nearly 8 per cent in spite of a tough comparative figure from the year before and its operating margins held steady at 18.5 per cent in even though the national living wage has added to costs. Strong cash generation meant investment was made in the business, debt was reduced and the dividend was raised for the 20th consecutive year.
It’s not clear why a proposed deal between Sportech (SPO) and Burlywood Capital regarding a sale by the former of its football pools business to the latter. But, as we learnt earlier this month, the near £100m deal has been called off leaving a question mark over the future of the division. And the group is also still waiting for a Supreme Court decision on whether it will receive a £97m VAT rebate from HMRC. Three Appeal Court judges ruled in their favour but the taxman is like a dog with a bone and won’t let go that easily. Operationally, management said the group is trading in line with expectations with its racing and digital and venues divisions ticking along.
Mercia Technologies (MERC), an investor in businesses in fast-growing sectors such as software, materials and life sciences, reported a 22 per cent rise in the the fair value of its investment portfolio to £46.6m in the six months to 30 September. Management invested £5.7m in nine businesses in its portfolio. And one of its interests, Concepta, was admitted to the Aim market.
Shares in Idox (IDOX) climbed 3 per cent after the information management specialist reported double-digit growth in revenues and adjusted profits in the year to 31 October. Organic sales rose 5 per cent in its public-sector software business, and the engineering information management division returned to top-line growth.
Shares in Grafton Group (GFTU), which tanked at the time of its half-year report in August, are up nicely this morning on the back of a better-than-expected trading update. Revenue at the building merchants increased 12.8 per cent to £2.11bn in the ten months to October, while operating profit was in line with group expectations.
Vedanta Resources (VED) shares soared by 13 per cent this morning, despite a significant jump in net debt and cash profits below analyst expectations. However, the market continues to buy into the stock following a renewed management commitment on dividends, and significant cost savings in the first half. Metals prices, surging on the result of the US presidential election, are also helping.
Hikma (HIK) has once downgraded revenue guidance for its struggling generics business and now expects sales of $600m, compared to the previous forecasts of $640-670m. But by cutting costs, management expects operating profit to be the same as previously expected.
OTHER COMPANY NEWS:
It seems bicycle retailer Halfords (HFD) is still struggling to recover its pre-Brexit share price level after interim results today pushed the stock down another 1.2 per cent in early trading. There’s good news - but also bad. First, like-for-like sales in the cycling category were strong - up 17 per cent - as a warm September helped to extend the summer season. But heavy promotional activity, coupled with severe currency-related headwinds pushed profits down more than 12 per cent, and well below analysts’ expectations. While bosses there say they are confident of meeting full-year profit forecasts of £74.8m, brokerage Peel Hunt calls this “a stretch”.
Online car marketplace Auto Trader (AUTO) has reported a strong set of interim figures, “comfortably ahead” of Numis forecasts, in turn pushing the shares up more than 3 per cent in early trading. Revenues rose 11 per cent during the six months ended 25 September, to £154m, with underlying operating profits up 23 per cent to £102m. Cash flow has improved, net debt has fallen and the interim dividend has leapt from 0.5p this time last year to 1.7p. More to follow.
Housebuilder Bovis (BVS) provided further evidence that the new-build market remains in rude health. Trading in the year to december is expected to bring in record revenue. Reservations currently in place suggest that sales will have grown this year by 5 per cent, while average selling prices are expected to have risen by 10 per cent. Hold
Uncertainty generated by the UK referendum is expected to depress valuations at property group Derwent London (DWL), but demand for office space in London appears to be holding up well. Trading in the first nine months to September saw lettings rise to a record level with rates secured beating the December 2015 estimated rental value by 6.9 per cent and 2.8 per cent ahead of June 2016. Around 400,000 sq ft of space is due for completion by the second half of 2017, two-thirds of which has already been pre-let. Hold.
