Today's market overview
Equities remain in a good mood with the FTSE100 heading towards a breach of the 7,300 level. Click here for The Trader Nicole Elliott's latest take on the markets.
IC TIP UPDATES:
Big news of the day goes to J Sainsbury (SBRY) which has reported a 1 per cent rise in underlying sales over the festive period. That compares to a decline of 0.4 per cent this time last year - a marked improvement for the middle-market grocer. Doubters of its 2016 takeover of Argos might also want to eat their words: excluding contributions from the acquired business, like-for-like sales only rose 0.1 per cent. With the shares up more than 6 per cent this morning, we remain buyers.
A record of more than 100 million film fans graced Cineworld (CINE) sites in 2016 thanks to the draw of hits such as Star Wars: Rogue One and Bridget Jones’s Baby. The company notched up a rise of 8.3 per cent revenue growth on a constant currency basis, which is lower than the prior year but that period benefited from the injection from the Cinema City acquisition in 2014. With its three VIP sites and the continued roll-out of Starbucks concessions across the estate, retail sales jumped nearly 13 per cent while box office sales rose 7 per cent. Elsewhere, Nisan Cohen has been appointed chief financial officer. He had been deputy CFO, assisting interim CFO Dean Moore, will now be an independent non-executive director. Buy.
Recent tip-of-the-year Ted Baker (TED) has come out swinging. The fashion chain reported a 17.9 per cent surge in sales over the Christmas period, compared to 10.1 per cent this time last year, while analysts at Liberum suggest sales densities increased by 2.1 per cent, thus implying mid-single digit like-for-like sales growth. E-commerce sales rose 35 per cent, while average retail square footage rose by 8.5 per cent over the period to 386,252 sq.ft. Gross margins were also reported to be in line with expectations. We remain buyers.
Housebuilder Taylor Wimpey (TW.) shrugged off the Brexit gloom and delivered another strong trading performance in 2016. Total completions rose by 4 per cent to 13,881, 19 per cent of which comprised affordable homes. Private reservation and cancellation rates were broadly flat, while completions in better quality locations lifted average selling prices by 13 per cent to £286,000. Outlets were down from 297 to 285, but the forward order book was higher at 7,567 homes. Completions also rose in Spain, and operating profits are expected to be significantly ahead from £10m recorded the previous year. Buy.
It doesn’t look entirely spick and span over at household goods manufacturer McBride (MCB) after revenues in the six months to 31 December dropped by 7 per cent. But 2.5 percentage points of this is down to the group’s move to cut 75 per cent of its customers which the new management team deemed unprofitable. This does of course mean sales were down 4.5 percentage points on the same period last year but there was a strong comparative figure to beat in December and management is still confident it can hit its full year adjusted operating profit targets. Buy.
Average platinum prices may have fallen in the last three months of the year for Tharisa (THS), but shares in the South African miner edged up five per cent this morning on news that contracted metallurgical chrome prices were up 59.2 per cent quarter-on-quarter. Our buy recommendation is under review.
Shares in Caledonia Mining (CMCL) have been on the wane since the gold price began to soften in November, but news that the company produced a record number of ounces at its Blanket mine in the last three months of 2016 sent the shares up to 119p. This year, Caledonia says it expects to produce 60,000 ounces at an all-in sustaining cost of $810 to $850 per ounce. Buy.
Travel group National Express (NEX) has pulled out of the UK rail sector after selling its c2c franchise to Trenitalia. The company had historically been the market leader with nine franchises but will now cut ties with domestic rail in favour of opportunities overseas. National Express has sold the franchise for £70m, a small net profit for the company. The bigger impact of the deal, though, is the entry of a new face in UK rail which could give the other listed players a run for their money. The UK company said it wouldn’t rule out bidding for a UK franchise again but it looks unlikely given the potential demands on franchisees due to government plans to make operators have a greater role in the upkeep of infrastructure.
There’s some relief to be found in sausage skin maker Devro’s (DVO) shares this morning after it announced adjusted operating profit would be in line with expectations for 2016. The company stumbled last year when it said margins would be hit for the period because of challenging conditions in Latin America and investment in its manufacturing capacity. Not only that, but it expected greater exceptional costs and lower 2017 profits than had been expected. But there’s some life in the bangers yet with with second half sales volumes in China more than double that in the first half, suggesting some capacity from its recently opened factory is being put to use. Buy.
Liontrust Asset Management (LIO) gained net inflows of £190m during the final three months of 2016, taking its total net inflows to £282m for the 2016 financial year. This meant assets under management were £6bn at the end of December, up a quarter on the end of March. The UK-biased active manager also generated £664m in market gains during the final nine months of the year. The shares have had a strong run during the past six months are now up 13 per cent on our buy tip. We place our recommendation under review.
Morses Club (MCL) has acquired Shelby Finance, an online instalment loans provider. The purchase is part of the sub-prime lender’s strategy to launch its own online loans provider, prompted by customer requests for an alternative to its home collected credit product. Buy.
Warehouse and industrial property landlord Segro (SGRO) delivered a 4.8 per cent valuation uplift for 2016, thanks to a combination of strong rental growth and modest yield compression. Consequently, net asset valuations for the real estate investment trust are expected to be at the top end of expectations. Within the development pipeline 19 of the 27 projects have been completed. Pre-let agreements have been secured on some of these, with further agreements under discussion. Buy.
Recruiter PageGroup (PAGE) posted a decent update, with gross profits up 4 per cent at constant currencies in the fourth quarter. This meant that it was a record year for the group in terms of gross profit, up 3 per cent overall at fixed currencies, and up 12 per cent in reporting terms thanks to the positive translation of foreign turnover back into pounds. Continental Europe and Latin America - excluding Brazil - were areas of strength, but the UK lagged as political uncertainties weighed on confidence. Buy.
Several board changes at Tullow Oil (TLW) will see chief operating officer Paul McDade replace Aidan Heavey as chief executive in at the end of April. Meanwhile, Mr Heavey will replace Simon Thompson as non-executive chairman.
Shares in support services provider Interserve (IRV) rose 7 per cent after announcing that its net debt position at end-2016 is expected to be better than previously guided, thanks to improvements to its working capital management. Trading expectations for the calendar year 2016 are unchanged as the lagging UK construction division would be “broadly offset” by international construction and equipment services.
It looks like the drinks won’t need to be quite so stiff over at Stock Spirits (STCK) thanks to an inline performance for 2016. The company had a tumultuous time last year after its chief executive left shortly after its largest shareholder, Western Gate Private Investments, agitated for operational change at the company. With two new non-executives appointed to the board and regional management teams in all its geographies now in place, things seem to have settled down. Management will elaborate on how its new strategy will be executed at its full-year results later this year.
London based estate agent Foxtons (FOXT) has warned that without any improvement in the housing market in London, volumes will be lower again. Cash profits for 2016 are expected to be around £25m; that’s down from £46m a year earlier. Lettings revenues were flat at £13m, but the proposed ban on letting fees could cost Foxtons around £3m, according to analysts at Peel Hunt. Given the bleak outlook, we are downgrading the shares, which fell 6 per cent today, to sell.
OTHER COMPANY NEWS:
Final results from Shoe Zone (SHOE) show some encouraging trends. The group was able to grow gross margins as a result of better direct sourcing and price stabilisation, plus shareholders are in for a special dividend worth 8p a share. Chief executive Nick Davis is pretty positive, but admits that retail is in for a tough 12 months. That said, in a consumer downturn, the value end of the market tends to do well and customer who trade down tend to be - in Mr Davis’ words - “sticky”. Margins might be more static in the months to come, but the market is pleased so far, sending the shares up close to 3 per cent.