London shares sold off sharply at the open today in reaction to Donald Trump's protectionist line at his inauguration on Friday and the resultant shift in dollar/sterling rates. Click here for The Trader Nicole Elliott's latest market views.
IC TIP UPDATES:
The prospect of raw material price increases might be what has shut the window on gains in Safestyle’s (SFE) shares this morning. The window and door maker said the price of the materials it uses to make its goods would rise in 2017, primarily due to the weakness in sterling but such increases would be offset by “improving the price we obtain for our products” - which to you and I suggests prices will rise. Management did successfully implement price increases last year and this helped it achieve record revenues and improve margins. The group’s cash level is also down but this is because of a special dividend (which cost £5.6m) and a £4.6m expenditure on its new factory extension. Buy.
Waste management specialist Augean (AUG) confirmed that underlying profit before tax is expected to be in line with consensus market expectations; while full-year net debt at £10.8m is £2.3m lower than expected due to strong operating cash-flows. Buy.
Specialist pharmaceutical group Alliance Pharma (APH) is due to report record turnover for its 2016 financial year after its major acquisition of 27 new products (completed last year) helped more than double turnover. The top line has also felt the benefits of a strong dollar and euro, compared to the pound, although as the group also obtains a lot of costs in foreign currency as well, this is not expected to fall through to the bottom line. Buy
Property franchise group Belvoir Lettings (BLV) expects profits for 2016 to be in line with expectations, thanks to an expanded network of franchisees. Fears of a ban on letting agents fees were soothed to some extent, as it is now becoming clear that any ban will not be introduced until 2018, and before then there will be a period of consultation to determine whether there will be a full or partial ban. Acquisitions also boosted revenue, the largest being Northwood, which brought in 86 franchised offices. However, given the current uncertainty and higher taxes on second homes, we are downgrading our buy tip. Hold.
Despite a resilient performance over the last financial year, shares in recruiter SThree (STHR) fell 2 per cent as chief executive Gary Elden admitted that the business environment will be marred by continued political and economic uncertainty this year. Revenues rose 6 per cent with gross profits up 10 per cent. But adjusted operating profits drew level year-on-year, while the adjusted conversion rate was down 1.6 percentage points to 16 per cent. More to follow, for now our recommendation is under review.
KEY STORIES:
It wasn’t just punter-friendly sporting results which hit the UK’s largest bookmaker Paddy Power Betfair (PPB) but also the outcome of the US presidential election. The Dublin-based group said it lost £5m because of President Trump’s win over rival Hillary Clinton, which was then followed by its European sportsbook business losing money in December as high-profile teams’ long winning streaks, such as by Chelsea and Celtic, hit the gambling companies. This cost the group roughly £40m in turnover. It’s online revenue declined by 3 per cent in the final quarter of the year as the customer-friendly sporting results were coupled with weakness in gaming. Thankfully the level of stakes grew by a quarter in Australia which partially offset Europe’s difficult performance. All this means group revenue was flat on a constant currency basis in the fourth quarter at £388m but is up 11 per cent for 2016 at £1.55bn.
A trading update showed Petra Diamonds (PDL) produced 2.015mcts at better grades in the last six months of 2016, and the group is on course to hit previous guidance of 4.4-4.6mcts. However, labour disputes and another fatality at the end of the period are concerning; similarly, net debt remains high at $465m – a level close to covenant ratio limits.
OTHER COMPANY NEWS:
Insurance might be seen by most as a necessary evil but having it has provided protection for interior furnishings specialist Walker Greenbank (WGB). The company’s Lancaster site was flooded in 2015 which hit production for much of last year. But management has announced an additional £1m in insurance payments on top of the £14.3m already received. Further reimbursement is due too. Production and restocking has been completed at the Standfast & Barracks factory and flood defences protecting the site have also been finished.
News that BT (BT.A) is to start charging for live sport may have caused grumblings from customers, but shareholders were pleased, sending the price up 3 per cent with the news on Friday. Much of that gain has now been lost, perhaps as analysts have begun to question whether BT customers will be willing to pay for the service when competitor Sky (SKY) has the rights to better content - crucially more Premier League games. Competition for premium content is causing much angst in the British broadcasting market at present, particularly with the lurking threat of services provided by Netflix (US: NFLX) or Amazon (US: AMZN).
Lamprell (LAM) shares have been staging something of a comeback in recent months, but in a decidedly downbeat trading update this morning, the energy services group announced full-year revenues would be around $700m. But while most of the rigs stacked in Lamprell’s facilities throughout the year remained inactive, a couple of recent contract wins with ScottishPower Renewables and Master Marine both bode well for cash generation and 2017, and underline the group’s flexibility outside oil and gas markets.
Silver and gold miner Hochschild (HOC) this morning reports that it has resolved a six-week dispute with the local community at its Pallancata mine in Peru. The stand-off, which resulted in a temporary pause to output, is not expected to affect all-in sustaining costs or 2017 production guidance for the mine.
When we last wrote about Braemar Shipping (BMS) at its half-year results we flagged the possibility of a cut to the final dividend. Today, the shipbroker and marine services group was forced to do just that, after a further deterioration in the technical division knocked expectations for adjusted (and underlying) operating profits to £3-£3.5m. Shares in the company are down 14 per cent so far.
