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News & Tips: N Brown, Aviva, BHP Billiton & more

Hawkish comments from the Fed chief have knocked market confidence
January 19, 2017

Shares in London are selling off after hawkish comments by the Chairman of Federal Reserve Janet Yellen yesterday. Click here for The Trader Nicole Elliott's latest thoughts on the markets.

IC TIP UPDATES:

In a sudden turnaround, shares in N Brown (BWNG) have staged a rally this morning following a far better-than-expected third quarter update. Group revenues rose more than 4 per cent over the period, with product revenue up nearly 6 per cent. Financial services revenues fell, but only by 0.5 per cent. A fortnight of promotions ahead of Christmas helped drive this growth, which inevitably means margins will fall between 100 and 150 basis points this year. Regardless, it marks a significant improvement in trading compared to the first and second quarters of the financial year. Our recommendation is under review.

Tritax Big Box (BBOX) delivered an upbeat pre-close trading statement for the year to 31 December 2016, with 10 new investments made during the year at a cost of £524m. Contracts have also been exchanged on two forward funded developments totalling £102m, with planning consent expected in March. The warehouse portfolio is fully let, and 61 per cent of tenants are companies in the FTSE100 index. Buy.

Workspace (WKP) continues to benefit from demand for small office space in London, and total rent roll in the first nine months of 2016 rose by 11.1 per cent to £8.7m. Like-for-like rent per sq ft over the same period was up 7.8 per cent, while occupancy edged up to 90.6 per cent. Buy.

Aviva (AV.) has announced several changes to its organisational structure. UK life insurance, general insurance and health insurance will be brought together under Andy Briggs, who will become chief executive of UK insurance. Meanwhile Maurice Tulloch will become chief executive of international insurance, responsible for Aviva’s insurance operations in France, Canada, Ireland, Spain, Italy, Poland and Turkey. Buy.

Its punters seemed in high spirits over the festive period but Revolution Bars’ (RBG) shareholders seem to have a bit of a hangover this morning with the stock down at the time of writing - at one brief point by nearly 13 per cent. Over what management calls the five-week Christmas and New Year period, group sales, including new sites, rose 16 per cent. It might be the slightly tepid growth in like-for-like sales which killed the party mood. In the 26 weeks to 31 December, sales on that metric rose just 2 per cent but leapt 12.7 per cent if new bars are included. This is good news on one hand as it means its four new Revolución de Cuba bars went down well in Harrogate, Reading, Aberdeen and Glasgow but towns and cities with existing sites were perhaps less effusive. Full year numbers are expected to be in line with expectations. Buy.

Revisions to expectations can either be good or bad but it is most definitely the former for floorcovering company Headlam Group (HEAD). Management said in December it expected its numbers to be ahead of expectations but has said this morning that bumper festive trading means it is shifting its 2016 numbers up again even from the December increase in consensus numbers. Key to its success seems to have been successful price rises made in August to help it mitigate the rising costs of manufacturing its goods due to the weakness of sterling. UK like-for-like sales were up 4.7 per cent, nearly 1 percentage point more than the broader market, while European sales grew 3.6 per cent on a constant currency basis, reversing the 3.8 per cent decline in the same period last year. Buy.

The cracks at posh crockery maker Portmeirion (PMP) seem to have been repaired after a tough 2016 when its shares fell more than a third from their May peak to October trough. Two overseas markets have continued to be troublesome for the group: South Korea, its third largest market, combined with India, have seen revenue drop more than £7m compared to 2015. That said, the company expects to report record revenues in 2016 of more than £76m, which is 11 per cent above the previous year. Its acquisition of Wax Lyrical in May last year has obviously helped. Buy.

Half year numbers from Allergy Therapeutics (AGY) are expected to come in ahead of expectations after stronger than expected demand across Europe sent turnover up 18 per cent at constant currency. The pipeline of new specialist allergy drugs is also progressing well and net cash remains stable at £27.8m. Allergy’s share price has had an incredibly turbulent few months and though now marginally up on our tip, we don’t think it fully reflects the potential in the group’s pipeline. Buy.

Ever a volatile stock, Shanta Gold (SHG) slipped 7 per cent this morning after all-in costs fell quarter on quarter and the East Africa-focused miner ended the year with a $4.5m increase in net debt. And while 2016 was a record year for production, annual guidance for 2017 is slightly lower, for 80,000 to 85,000 ounces at an all-in sustaining cost of $800-850 an ounce. Our buy call is under review.

KEY STORIES:

BHP Billiton (BLT) and fellow miner Vale (Br: VALE5) have reached a settlement with Brazilian authorities over the 2015 Samarco tailings dam disaster, consolidating a number of claims, including a $47.5bn civil action brought by federal prosecutors. In the event, BHP, Vale and Samarco will shell out just 2.2bn reals ($675m) in compensation and remediation from the impact.

Aim multi-bagger Sound Energy (SOU) released two important updates today: confirmation that it has commenced civil works at the TE-8 step-out appraisal well at Tendrara, Morocco, and that it is acquiring Oil & Gas Investment Fund’s assets in Eastern Morocco. These licences – which include a further 20 per cent interest in Tendrara, a 75 per cent interest in Meridja – will be paid for through the issue of 272 million new shares, which will be equivalent to 29 per cent of Sound’s post-acquisition value.

More yeast may be needed for the rise over at cake and bread maker Finsbury Food (FIF) after delivering a flat year-on-year sales performance for the six months to 31 December. Management said trading throughout Christmas had been solid, helping it achieve the £156.6m in sales. But the UK bakery division witnessed sales drop 2.9 per cent as the deflationary war between supermarkets continued to bite. The reverse of falling prices is now the concern though as in spite of internal initiatives to become more operationally efficient, the group said “further cost recovery will be required and will become inflationary” in the current trading period and beyond. Its smaller European business, which it owns half of, is developing well though, with turnover up nearly 32 per cent.

It’s a disappointing update from Pets at Home (PETS) - or at least the market thinks so having sent the shares down more than 8 per cent this morning. A third quarter update from the pet chain revealed a significant slowdown in merchandise sales, so much so that like-for-like growth there entered negative territory. While revenues from the services division were materially higher, analysts are concerned the margin benefit won’t be long-term. For now, however, management is confident about meeting full-year expectations.

Meanwhile it’s a different story for cycling chain Halfords (HFD). The company’s shares rocketed by 8 per cent this morning following news of strong third quarter trading. The market expected a 3.6 per cent improvement in like-for-like sales over the period, but the company actually managed a very impressive 7 per cent growth rate. Even better, this came from both the motoring and cycling divisions, the former helped by the recent cold weather in the UK. There’s also a special dividend in there - worth 10p - to sweeten this morning’s statement.

OTHER COMPANY NEWS:

There’s change afoot at the top of Britain’s two pharma giants. This morning GlaxoSmithKline (GSK) announced the departure of its head of global pharmaceuticals Abbas Hussein - a move that had been speculated about for some time since the the former head of consumer health, Emma Walmsley, was made chief executive. GSK has already got a replacement in place however and he comes from big rival AstraZeneca (AZN). Luke Miels was the executive vice president of Astra’s European business, having joined the company as a sales representative in 1995.

Shares in Royal Mail (RMG) fell 5 per cent this morning, after the core UK parcels and letters division posted a 2 per cent drop in revenues in the 9 months ended 25 December resulted. Though this was partly offset by strong revenue growth in the international division, UK parcel volumes edged up by just 2 per cent.

Investors in Acacia Mining (ACA) may have been hoping for fourth quarter results to contain a bit more detail on the gold miner’s possible merger with Canada’s Endeavour (Ca: EDV), but this was still a solid announcement. Strong output in the last three months of 2016 led to a fourth straight year of annual production increases, while an all-in sustaining cost of $958 an ounce led to far-improved margins against an average realised gold price of $1,240.