Investors awoke to a sea of red as most of London's main stock indices drifted downward in morning trading. The bad news included an EU plan to enable territorial restrictions on the clearing of some euro-denominated transactions before Britain leaves the union, and insurance market Lloyd's of London revealing plans to establish a base on the continent next year. Read The Trader Nicole Elliott's morning update here.
News & Tips Thurs 15 Dec
IC TIP UPDATES:
The negative PR surrounding the Govia rail franchise refuses to weigh too heavily on its joint parent Go-Ahead’s (GOG) shares. The stock took a big knock in June when the company announced margins over the life of the Govia contract would be half what had been expected (down to 1.5 per cent) due to increased investment but since then it has been slowly gaining ground. Its full-year expectations for its rail division are, it has said today, slightly below expectations due to higher costs and greater bidding activity. Management said discussions with the Department for Transport were ongoing regarding contractual claims relating to RMT industrial action and that subsequent claims related to this week’s ASLEF train drivers’ union strike would also be submitted. The bus division remains in line though. Buy.
Shares in online delivery service Just Eat (JE.) rose on news that the group will buy hungryhouse from Delivery Hero for £200m. According to company bosses, hungryhouse is an online food company operating “solely” in the UK, with a comparable business model to Just Eat. The group says it expects hungryhouse to generate annual cash profits of between £12m and £15m, excluding one-off exceptional transaction and integration costs of around £1m. We remain buyers.
Sporting chain JD Sports Fashion (JD.) has responded to media reports which accuse the company of poor working conditions at its Kingsway distribution centre. Management said it was deeply disappointed by the allegations and that a full investigation would be launched, along with a re-training initiative. Bosses also insisted that it did not operate a ‘strike’ system with workers and that employees could not be fired on the spot. Hoping this has been nipped in the bud, we remain buyers.
The house keeps winning over at online gambling company GVC (GVC) whose strong performance since its acquisition of Bwin Party means net gaming revenue and cash profits will be at the upper end of market expectations. Not only that, but the real trump card comes with a 49 per cent increase in its recently announced special dividend. It had promised a 10c per share special payout but this has now been cranked up to 14.9c, which management said was fixed at 12.5p a share. Buy.
A mixed trading update caused shares in oilfield services group Petrofac (PFC) to fall 4 per cent this morning, despite assurances from chief executive Ayman Asfari that net profit will fall in line with previous guidance. Most concerning was the order backlog, which had fallen to $14.5bn by the end of November, down $6.2bn since the close of 2015. Given our confidence that stalled deals will pick up next year, we keep our buy recommendation.
Centrica (CNA) has announced it expects its full-year results to be ahead of the targets it set out this time in 2015. Adjusted operating cash flow is expected to be in the range of £2.4bn to £2.6bn, ahead of the £2bn initially outlined. Meanwhile efficiency savings are expected to be around £300m, while adjusted earnings per share are anticipated to be 16.5p, which is lower than last year but 6 per cent ahead of market expectations. The group seems to be on track in executing its recovery plans and the shares are up on our tip. Buy.
Liontrust Asset Management (LIO) has acquired Alliance Trust Investments for up to £30m, sending the shares up 3 per cent. The purchase will bring with it around £2.3bn in assets under management, increasing Liontrust’s total assets to more than £8bn. The shares are now up 4 per cent on our buy tip following a rally during the first three-quarters of the year. Buy.
KEY STORIES:
Shares in Nanoco (NANO) climbed 8 per cent in early trading after the cadmium-free quantum dot specialist revealed that partner Wah Hong, in light of high market demand and rapid progress, will bring forward its planned investment in another film-coating production line by 12 months to the second quarter of 2017.
Keeping brands as fresh as the scents of their shower gels will be key for personal care company PZ Cussons (PZC) in the second half of its financial year. Management said brand renovation and innovation would underpin the results in Europe and Asia while there would be “various mitigating actions” in the UK business to counter higher costs - something rival Unilever (ULVR) had a very public spat about with regards to Marmite. PZ, and others like it, will be working hard to keep a lid on costs and thus price rises for its customers if the inflationary outlook proves true and consumers start to feel the pinch. In Nigeria, whose naira currency has been hit hard this year, the company said it had managed to hold or grow market share in the country and was ready for its “peak season”.
Strong trading has continued at Redde (REDD) during November and December, meaning management continues to expect the motor accident and claims specialist to produce full-year results ahead of expectations. Management also announced it expects to increase the interim dividend by around 9 per cent.
Bunzl (BNZL) has announced group revenue for the year has increased by around 14 to 15 per cent on 2015 at actual exchange rates and between 4 and 5 per cent at constant exchange rates. Trading during the fourth quarter has picked up thanks to new business wins and an easing of the impact of declining prices for plastic resin-based products. The group has agreed to buy 13 businesses this year, with a spend of £150m.
OTHER COMPANY NEWS:
Overseas-based gambling outfit 888 (888) has said it expects adjusted cash profits to be in line with expectations. It says investment in its proprietary platform and increasing presence in regulated markets has driven its main consumer-focused business. Its improved marketing capabilities also mean it is better able to communicate with customers by sending them information about potential bets they might be interested in.
SigmaRoc (SRC) has announced its intention to complete a reverse takeover of Ronez, an integrated producer of construction materials and hard rock quarry operator. The acquisition, which has been priced at £45m, is being funded through a £10m convertible note placing and the sale of 100 million newly-consolidated shares.
