Shares in London have added more than 1 per cent in early trading as investors follow the lead from over the pond. For The Trader Nicole Elliott's latest views on the markets, click here.
IC TIP UPDATES:
AstraZeneca (AZN) has got its head and neck cancer drug trials back on track after surprising side effects forced the group to halt recruitment last month. The shares have dive bombed since - unsurprising really since management had put so many hopes on the success of the drug in question. But the drug is just one constituent in Astra’s very impressive oncology portfolio and we think recent share price weaknesses merely highlight the current buying opportunity.
Like most of the larger pub groups change is still afoot at Mitchells & Butlers (MAB). Recently installed chief executive Phil Urban has started investing in part of the estate and it has started to yield some results. While like-for-like sales dropped 1.6 per cent in the first half, there was a small 0.2 per cent growth in the second half meaning the year’s sales were down 0.8 per cent. In the eight weeks since the period end under review, like-for-likes have turned positive. Adjusted earnings per share fell 2.2 per cent to 34.9p reflecting the lower total sales but also a weaker margin in the second half, largely due to the 7.5 per cent increase in the minimum rate of pay for those aged 25 and over thanks to the national living wage as well as investment in the business relating to closure costs and pre-opening costs. A total of 75 sites will be sold after a review of its estate was carried out and it’s aim is to become a more premium outfit, with desires to grow its Miller & Carter brand to 100 sites by 2018. Roughly 250 of its sites were converted into different formats or refurbished and it is hoped this will rise to 300 in 2017. Sell.
Companies who need their workplace catering organised look like they’re still tucking into what Compass Group (CPG) has to offer. Underlying sales rose 5 per cent to £19.9bn thanks to strong growth in the US of 8.1 per cent, as well as a stable return from Europe (up 2.8 per cent) and the rest of the world up 3.6 per cent, excluding its offshore and remote business which is being affected by the commodities downturn. Its efficiency programme is now complete and the benefits of this are perhaps most visible in underlying free cash flow, which rose more than a fifth to £908m. The fact it earns a fair chunk in dollars also helped reported operating profit rise 6 per cent. Buy.
Shares in Tarsus (TRS) climbed 3 per cent after management indicated that if sterling weakness continues, it should provide a material boost to the events group’s figures for the next financial year. In the meantime, underlying performance remains strong. Buy.
With revenues and operating profits up 13 per cent in the year to August 2016, Focusrite (TUNE) looks in great shape. The financial year has seen 16 new product launches which have all seen strong uptake. Plus the launch of new e-commerce platforms in the US and UK and opening of a dedicated Asia office in Hong Kong helped to drive revenue growth across all operating regions. The only black mark is the imminent departure of chief executive Dave Froker who has led through group through its IPO and early years on Aim. Even so the share price is up 4 per cent this morning. Buy
Shares in Telecom Plus (TEP) climbed 3 per cent after the utility services provider revealed slightly higher sales and an 11 per cent rise in adjusted pre-tax profits in the six months to 30 September. Both customer numbers and the number of services supplied rose. Under review.
A trading update from packaging specialists Macfarlane (MACF) has sent the share price up 8 per cent in early trading. Management have reported a solid start to the second half of the financial year which puts the group comfortably in line to meet full year expectations. Acquisitions are performing well and the group’s traditional solid cash flow means net debt is reducing. Buy
Shares in Cambria Automobiles (CAMB) have plunged more than 7 per cent on the back of full-year results from the motor retailer after management expressed concerns over the new car segment during the first quarter of the new financial year, causing analysts at N+1 Singer to cut pre-tax profit forecasts by 15 per cent for FY2017 and FY2018. Net debt is also due to rise this year and next, reflecting the group’s commitment to invest in Jaguar Land Rover projects. Our recommendation is under review.
Investors did not like what they saw in Renew Holdings’ (RNWH) final results, marking the shares down by 4 per cent today. That was despite an 8 per cent increase in adjusted operating profit to £22m, a 30 basis point increase in the operating margin, and a 14 per cent uptick in the final dividend. Our recommendation is under review.
The combination of increased costs and lower revenues is rarely taken positively, and so it proved in the market’s reaction to construction group Accsys’ (AXS) half-year results. The reasons behind these swings were supply bottlenecking issues, lower licensing income and a lower pricing agreement with Solvay, though the effect on the period-end cash position was offset by the €4.2m raised in the sale of land in Arnhem. Our recommendation is under review.
Buy tip Equiniti (EQN) reported trading during the first nine months of the year was in line with management expectations and reckons this will continue until the end of the year. The group has benefited from gaining new clients including Biffa, Admiral (ADM) and GoCompare. The group is well up on our buy tip, which we are sticking with.
KEY STORIES:
Grocery group Morrisons (MRW) is making its way back into convenience retailing. The group sold off its M Local chain as part of a widespread recovery effort which started in earnest last year. But this morning the company has announced it will pilot a convenience food offer in ten petrol station shops owned and managed by leading forecourt operator, Rontec. Four Morrisons Daily shops will open before Christmas and a further six in January. Bosses there also plan to revive the Safeway brand as a wholesaler to independent retailers.
Shares in Entertainment One (ETO) slid 7 per cent after the film-and-TV distributor’s underlying cash profits slid more than a quarter to £38m in the six months to 30 September. However, management expects the culprit - greater investment in films - to underpin strong second-half trading. And on the bright side, constant-currency sales rose across the group’s divisions.
It’s once again Screwfix which is the grafter over at DIY specialists Kingfisher (KGF). The group is undergoing a wide-ranging overhaul which is aiming to save hundreds of millions of pounds a year in costs and simplify its range of goods. This means you’re likely to spend less time choosing which light bulb to buy as there’ll be fewer on offer than before. Screwfix is driving things at the moment though with like-for-like constant currency sales up nearly 13 per cent to £343m with B&Q sales on the same basis up 3.5 per cent to £900m. B&Q is still going through a store closure programme, which meant reported sales were lower. France’s Castorama and Brico Dépôt continue to struggle with like-for-like constant currency sales falling 3.6 per cent in the country but other overseas markets such as Poland are starting to take up some of the slack.
There doesn’t seem to be any stopping carpet manufacturer Victoria (VCP) since its 2013 boardroom coup. And its half-year results aren’t any different, with sales up 45 per cent to £153m and underlying cash profit up 60 per cent to £20.2m. This was well-fuelled by acquisitions but like-for-like sales on a constant currency basis still rose a healthy 8 per cent. In fact, deals have been key for Victoria, with six acquisitions in four years. What’s more, net debt has continued to fall while adjusted earnings per share is up 58 per cent to 10.43p.
Mid-tier pharma players Hikma (HIK) and Vectura (VEC) have joined forces to make a splash in the respiratory marketplace. Hikma has agreed to help fund and subsequently distribute Vectura’s generic asthma drug salmeterol, which will offer patients a cheap alternative to the branded product sold by GlaxoSmithKline (GSK).
Homeserve (HSV) grew sales by a fifth in the six months to 30 September, driving the home assistance provider’s adjusted cash profits up 21 per cent to £47.9m. Total customer numbers swelled 14 per cent to 7.5m, but net debt ballooned a quarter to £253m.
CYBG (CYBG) generated its first statutory pre-tax profit in five years during the 12 months to the end of March, at £77m. The Clydesdale bank owner grew its mortgages by 6.5 per cent and core SME lending by 6.1 per cent. The net interest margin also increased three basis points to 2.26 per cent and the cost to income ratio improved to 88 per cent from 120 per cent a year earlier.
Analysts at Numis have said growth across AO World’s (AO.) European arm has fallen short of their expectations and, as such, have upped forecasts for widening losses across that business this year. Despite a staggering 155 per cent leap in UK cash profits, concerns about the European expansion plan are clearly weighing heavy for investors given the shares are down more than 3 per cent this morning. More to follow.
It’s rare for a company’s share price to double in a week, but prospective nickel copper sulphide miner Amur Minerals (AMC) achieved that feat today, after signing a financial agreement with a Russian government agency. The deal should provide Amur with access to financing from Russian, Chinese and Indian investors, and follows last week’s announcement of a plan to build an access road to Kun Manie, located in the Far East of Russia.
