Shares in London are up marginally but with little conviction. Click here for The Trader Nicole Elliott's latest thoughts on the markets.
IC TIP UPDATES:
Expectations that a sweet-induced rush will push full-year expectations “modestly” ahead of guidance hasn’t done much to encourage Tate & Lyle (TATE) shareholders this morning following a 4 per cent rise yesterday in anticipation of the trading statement. Demand in the US continued to be soft meaning volumes in its specialty food division fell. Volumes in Europe, the Middle East and Africa were robust but Latin America had to be relied upon to offset weaker demand in Asia Pacific. Profits in its food systems division continued to be held back and earnings out of Splenda was ahead mainly because production is now concentrated in one site. Its bulk ingredients division is expected to enjoy modest margin gains in 2017 but this update, for the three months to 31 December, has left the shares flat. Sell.
The cost of the goods Clover spread and Cathedral City cheese maker Dairy Crest (DCG) needs to make its products are rising but there’s no mention of what this means for its end consumers. Management said it had increased the price it pays to its farmers for their milk by 8.28p a litre since June - a 38 per cent increase - and that the price of cream, which determines the input costs for its butter business, more than doubled in the first half of its trading year. As such, the group has suffered a working capital outflow and expects net debt to be “somewhat higher” than it was in March last year. But there’s no mention of whether the prices of its products when they are on supermarket shelves will rise. It’s likely they will, but some guidance on this might have mitigated the 4 per cent fall in the shares this morning, given trading is otherwise in line. Buy.
RPC Group (RPC) is to broaden its geographic footprint through the acquisition of US plastics manufacturer Letica Group for an upfront consideration of $490m (£391m), rising to a maximum of $640m, including earn-out provisions. The deal will be funded by a fully underwritten 1-for-4 rights at a price of 665p each, raising gross proceeds of approximately £552m. Buy.
There’s a new sign above the door at Enterprise Inns (ETI), which is set to change its name to Ei Group. This means, from 10 February, it will trade under the stock exchange mnemonic of EIG. Shareholders with shares in certificate form do not need replacements. The rationale for the new name is the changing strategy of the group, which is switching from a predominantly tenanted and leased business to one where managed houses (where the group directly employs the staff running the pub) and commercial properties (such as turning unused space into flats) sit alongside the original model. The group is aiming for 400 commercial properties by its financial year end A total of 181 of them traded through the 18 weeks to 4 February and saw like-for-like net income growth of 2.1 per cent. It is also aiming to have 250 managed houses by the end of September. Buy.
The shares in tour operator Thomas Cook (TCG) just cannot seem to get off the ground. Back in November it announced its return to the dividend roster prompting cheer from shareholders but a pre-tax loss of £135m - 18 per cent worse on a like-for-like basis than the same quarter the prior year - hasn’t filled people with joy. The shares are down 7 per cent at the time of writing. In terms of trading, its summer 2017 booking cycle is faring well, with group bookings up 9 per cent with pricing broadly in line with last year, and its summer programme is now 31 per cent sold, a total of 2 per cent higher than last year. The winter period is 82 per cent sold, in line with last year. Total group bookings are 1 per cent higher but prices are down by the same amount. The company increased its capacity of Greek holidays, which has worked out well as some holidaymakers are still eschewing eastern Mediterranean destinations such as Turkey and Egypt as a result of recent terror attacks. This has also pushed demand up for locations such as Cyprus, Bulgaria, Portugal and Croatia. Elsewhere, the cost of its debt has fallen after issuing a longer-dated bond. Buy.
Investors in Pennon (PNN) were reassured after management reported South West Water is on track to deliver its 11.7 per cent return on regulated equity this year and waste management business Viridor is on track to deliver the targeted £100m cash profits. The shares were up 3.5 per cent. The utility group also announced it would be unwinding a derivative - entered into 2011 with Nomura - early. However, the group recognised a £39.5m derivative liability in its first-half results. Buy.
KEY STORIES:
Any doubts that GlaxoSmithKline (GSK) has been in dire straights were quashed yesterday by solid annual results. New product launches helped to offset the decline in sales from some of the group’s biggest revenue generators. This helped send core earnings up by 12 per cent to 102p. But management heeded a word of warning that the anticipated launch of cheap generic copies of one of GSK’s top selling drugs Advair may cause earnings growth to taper next year.
This is a sharp contrast to the annual results from Smith & Nephew (SN.) where trading was difficult in 2016 but the outlook is positive in the current financial year. The group’s performance was poor in China but strong demand for sports medicine products in the US helped underlying revenue tick up by 2 per cent. Reported earnings were skewed by the $326m disposal of the gynaecology business and on an underlying basis earnings fell 3 per cent.
Ashmore (ASHM) delivered first-half results that were ahead of market expectations, sending its shares up 7 per cent on the morning of their announcement. Net outflows declined again to $0.7bn, which was partially offset by $0.3bn in investment gains. As a result assets under management declined 1 per cent to $52.2bn during the period.
OTHER COMPANY NEWS:
We previously reported that online fast-fashion e-tailer boohoo.com (BOO) was entering into a bidding process to formally take over the assets of US rival Nasty Gal once the latter had entered administration. As of today, it has been confirmed that boohoo is the preferred bidder, and the transaction - valued at $20m (£m) should complete by the end of the month.
A half year update from DFS Furniture (DFS) has left the shares flat, despite confirmation of a special dividend come the half-year results later in March. Gross sales are up 7 per cent on the prior year but there has been some impact on product margins in the first half thanks to adverse foreign exchange movements. Management say they are trying their best to offset this through continued negotiations with suppliers. For now, pre-tax profit expectations remain unchanged.
